The EUR/GBP stretched for the 0.8700 major handle in Friday trading, closing the week with over a full percent of upside gains with the Euro (EUR) seeing its best trading week against the Pound Sterling (GBP) since early February.
The Bank of England (BoE) pulled back from a broadly-anticipated rate hike this Thursday after inflation figures for the UK economy came in broadly lower than expected. The UK central bank is seeing inflation fall away faster than previously expected, and the BoE is set to see a "none and done" end to the rate hike cycle.
Eurozone Purchasing Manager Index (PMI) figures came in mixed early Friday, with the headline Composite PMI for September printing at 47.1, reversing the forecast decline 46.5 and climbing further from the previous period's 46.7.
The underlying components were less positive, leaving the Euro with limited upside following the release.
The EU Services PMI printed at 48.4, well above the forecast 47.7 and improving from the previous 47.9.
The Manufacturing component flubbed market forecasts, printing a disappointing 43.4, ticking down from the previous 43.5 and entire missing the market's expected improvement to 44.0.
BoE holds interest rate steady at 5.25% in split vote
Eurozone Preliminary Manufacturing PMI unexpectedly falls to 43.4 in September vs. 44.0 expected
Next week is particularly anemic for both the Euro and the Pound Sterling, though next Friday will be seeing Gross Domestic Product (GDP) figures for the UK, to be closely followed by Consumer Index Price (CPI) numbers for the Eurozone.
The EUR/GBP managed to etch in another gainer week, coming within sight of the 200-day Simple Moving Average (SMA) currently treading water near 0.8720.
The pair has accelerated cleanly through the descending trendline from July's swing high into the 0.8700 handle, and continued buying pressure will see the pair mount the psychological level and stage further gains.
On the downside, immediate technical support is coming from the 100-day SMA, currently turning bullish from 0.8600, and the bottom of recent consolidation is sitting further below near 0.8520.
Wall Street finished the week on a lower note, mixed with the S&P 500, the Nasdaq, and the Dow Jones printing losses. Additionally, US equities plunged, led by the S&P 500 dropping to levels last seen in June.
The S&P finished Friday’s session at 4,320.06, dropping 0.23%, but plunged -3.02% weekly. The heavy-tech Nasdaq edged lower by a minimal 0.09% and sank 3.21% weekly, while the Dow Jones Industrial dived 0.31% at 33,963.84 and slumped -1.89% in the week.
Sector-wise, the biggest gainers were Technology and Energy, each gained 0.26% and 0.15%. The laggards were Consumer Discretionary, Financials, and Real Estate, erasing from its value 0.87%, 0.74%, and 0.72%, respectively.
During the week, the Federal Reserve held the sixth monetary policy meeting, in which the US central bank decided to hold rates but upward revised their projections to the Federal Funds rate (FFR). For 2023, policymakers expect the FFR to end at 5.60%; for 2024, they increased their estimates from 4.6% to 5.1%.
The data spurred an aggressive reaction in the financial markets, with US equities plummeting sharply after hitting fresh weekly highs. US Treasury bond yields touched 16-year highs, led by 2s, 5s and 10s. Nevertheless, as traders booked profits before the weekend, US bond yields retraced, though they failed to undermine the Greenback.
Data-wise, S&P Global announced the final PMI readings in the United States (US). Manufacturing PMI improved to 48.9 but stood at recessionary territory. Contrarily, Services and Composite PMI showed signs of losing steam, though it expanded but continued to aim towards the 50 expansion/contraction threshold.
US Treasury bond yields finished the session with the 10-year benchmark note rate at 4.36%, lost 1.33%. The Greenback, as shown by the US Dollar Index, ended positively, climbing 0.19% to 105.58.
WTI rose by 0.85% daily in the commodity space underpinned by tight supply concerns stemming from Russia’s fuel export ban.
The USD/CAD is set to finish out Friday near where it started, trading just south of 1.3490.
The Loonie (CAD) has twisted through the back half of the trading week, with the CAD and (Greenback) playing tug-of-war.
Rising oil prices have been boosting the CAD lately, but a break in crude gains sees the USD/CAD testing back into recovery territory.
Canadian Retail Sales rose 0.3% in July, slightly below market expectations of 0.4% but an improvement on the previous month's -0.7%, which was revised upwards from -0.8%.
Core Retail Sales (retail sales figures less automobiles) rose 1% for the same period, breezing past analyst forecasts of 0.5%.
On the US side, Purchasing Manager Index (PMI) figures came in mixed, seeing a brief slip in the US Dollar but capping off the potential for a determined move in either direction for the USD.
The preliminary US S&P Global Manufacturing PMI for September climbed to 48.9 against the expected 48, easily clearing expectations. The Services PMI component slipped analyst forecasts, dipping to 50.2 and reversing the expected improvement to 50.6.
US S&P Global Manufacturing PMI improves to 48.9, Services PMI declines to 50.2 in September
The economic calendar is on the thin side for next week, but investors will be keeping one eye out for US Durable Goods Orders next Wednesday. Markets are expecting durable goods orders for August to print at -0.4%, a declining figure but still an improvement from the previous period's 5.2% decline.
The USD/CAD is trying to recover from near-term lows into 1.3380, and is seeing the 200-hour Simple Moving Average (SMA), currently capping off intraday action from 1.3500.
The pair is 1.6% down from September's peak just below the 1.3700 handle.
Daily candlesticks sees the USD/CAD stuck into the 200-day SMA, and market sentiment could flow in either direction moving forward.
USD/CHF is set to end the week with decent gains of more than 1%, while breaking above the 200-day moving average (DMA), which could open the door for further upside, with buyers eyeing a new cycle high. Therefore, the pair is trading at 0.9071, edges up 0.30% late in the New York session.
The daily chart portrays the pair extending its gain past the 0.9032 (200-DMA), and puts a challenge of the 0.9100 figure into play. A breach of the latter will expose the May 31 cycle high at 0.9147, which, if cleared, the USD/CHF could rally back to the March 16 daily high at 0.9340.
Conversely, sellers would face the 200-DMA and the 0.9000 mark. Those two levels hurdled, and the USD/CHF would dive and test the September 20 daily low of 0.8931 before testing the 0.8900 figure.
The GBP/USD is looking for further downside to end the trading week, probing chart space below 1.2250 heading into the final hours of Friday's trading session.
The UK's Bank of England (BoE) came in dovish this week after British inflation came in much lower than previously anticipated. The BoE held its benchmark rate at 5.25%, waffling on a market-expected 25-basis-point increase to 5.5%.
UK Retail Sales on Friday missed expectations, printing at 0.4%. The figure rebounded from the previous reading of -1.1%, but failed to capture the market forecast of 0.5%.
UK Purchasing Manager Index (PMI) figures mixed towards the downside, capping any upside potential for the Pound Sterling (GBP).
The preliminary UK S&P Global/CIPS Composite PMI for September declined to 46.8, missing the expected increase to 48.7. The previous month's PMI came in at 48.6.
The manufacturing component of the UK PMI came in better than expected at 48.9 versus the forecast 48.0, but the services sector PMI declined to 47.2 compared to the forecast 49.2.
On the US side, PMIs also came in mixed. The composite ticked lower to 50.1 from 50.2. The manufacturing PMI jumped to 48.9 from the previous 47.9, while the services component slipped to 50.2 from 50.5 and walking back the expected uptick to 50.6.
BoE holds interest rate steady at 5.25% in split vote
UK Preliminary Services PMI declines to 47.2 in September vs. 49.5 expected
US S&P Global Manufacturing PMI improves to 48.9, Services PMI declines to 50.2 in September
The Pound Sterling continues to struggle against the US Dollar, with the GBP/USD down almost 1.5% from the week's high near 1.2425.
The pair briefly pierced the 100-hour Simple Moving Average (SMA) on Wednesday but has fallen to the downside, now trading beneath the 34-hour Exponential Moving Average (EMA) currently drifting to the low side of 1.2280.
Daily candlesticks have the GBP/USD piercing the 200-day SMA just above 1.2400, and continued downside will see the pair set to challenge six-month lows, with little technical support between current prices and 2023's lows near 1.1825.
Gold price recovers some ground after hitting a weekly low of $1913.99, though it remains shy of breaking solid resistance at around the 50-day moving average (DMA) at $1929.79. Factors like dropping US T-bond yields and an upbeat market sentiment drive XAU/USD’s price toward the current spot at $1924.56, achieving gains of 0.25%.
XAU/USD prices is being driven up by the reversal in US bond yields. The US 10-year benchmark note coupon reversed from a 16-year high of 4.51% towards 4.44%. Consequently, US real yields are edging lower from five basis points from 2.11% to 2.06%.
In the meantime, Federal Reserve officials had turned cautiously, led by Boston and San Francisco Fed Presidents Susan Collins and Mary Daly, stressing that although inflation is cooling down and further rate hikes would be needed, the Fed must be patient. Fed Governor Michelle Bowman commented that more increases are needed to control inflation.
Data-wise, S&P Global announced the final PMI readings in the United States (US). Manufacturing PMI improved to 48.9 but stood at recessionary territory. Contrarily, Services and Composite PMI showed signs of losing steam, though it expanded but continued to aim towards the 50 expansion/contraction threshold.
Meanwhile, the US Dollar Index prints modest gains of 0.17%, stalling Gold’s rally. The DXY sits at 105.56, set to print solid gains for the tenth straight week.
On the US front, Consumer Confidence, Durable Goods Orders, Initial Jobless Claims, and the Fed’s preferred gauge for inflation the core PCE.
From a technical standpoint, the XAU/USD is set to continue to trade sideways, within the $1913-$1948 range, with most daily moving averages (DMAs) hovering around the current exchange rate. However, as the yellow metal remains below the 200-DMA, which sits at $1926.24, the path of least resistance is tilted to the downside. First support would be the September 21 low of $1913.99, followed by the September 14 $1901.11 swing low. Conversely if the non-yielding metal surpass the 100-DMA at $1941.86, a challenge of the $1950 mark is expected.
The GBP/JPY is ticking into the south side of the 181.50 handle after the Pound Sterling (GBP) failed to recover any meaningful ground from Thursday's backslide. The Guppy is down almost a full percentage point this week.
The Bank of England (BoE) struck a notably dovish tone this Thursday, standing pat on its benchmark interest rate after inflation data for the UK came in much softer than expected earlier this week. The BoE is holding its reference rate at 5.25% for the time being, and it's increasingly looking like a 'none and done' scenario for the UK's rate hike cycle.
The Bank of Japan (BoJ) also held its main policy rate, maintaining a negative rate regime at -0.1%. The BoJ is keeping steady on its hyper-easy monetary policy mechanisms, and the BoJ is determined to try and keep Japanese inflation up above the 2% mark.
Japanese inflation is currently riding on the high end of policymakers' target level, but Japanese inflation is broadly expected to plummet in the coming months, and the BoJ is not in a rush to start reversing their negative rate policy until the central bank is assured that inflation will remain above their minimum target.
BoE holds interest rate steady at 5.25% in split vote
BoJ’s Ueda: Could consider policy change when achievement of 2% inflation is in sight
The economic calendar for the upcoming week is looking sparsely-populated through the first half of the week, and the only notable release on the data docket will be the BoJ's meeting minutes on Tuesday, which will reveal the Japanese central bank's inner monologue on the interest rate decision that just passed.
The GBP/JPY failed to hold onto rebound gains, etching in a high of 182.30 on Friday before settling lower, looking to establish a break of 181.50 to close out the week's trading session.
The pair remains firmly bearish below the 200-hour Simple Moving Average (SMA) which is currently pricing in resistance from 183.00.
Daily candlesticks see the Guppy waffling towards the 100-day SMA near the 180.00 major handle, and the pair is down almost 3% from August's peak near 186.70.
Investors will be keeping an eye out for a sustained bearish push into the 100-day SMA, where a recovery rally could see a rebound back into the 34-day Exponential Moving Average that is currently capping off upside potential and sitting just north of near-term highs near 183.30.
The Australian Dollar (AUD) stages a comeback versus the Greenback (USD) on Friday, and it remains set to finish the week with decent gains. Overall US Dollar weakness, along with investors seeking risk, and dropping US Treasury bond yields, are the reasons behind the buck’s reaction. Hence, the AUD/USD is posting gains of 0.51%, trading at 0.6448 once the pair bounced off the 0.6403 low.
S&P Global revealed that business activity in the United States (US) remains subdued, failing to gather momentum, instead decelerating. Manufacturing PMI, despite improvement, remained below the 50 threshold that divides expansion from contraction, while the Services and Composite PMIs, clung to expansionary territory, despite printing lower readings compared to August.
Aside from this, Federal Reserve officials remained hawkish, led by Fed Governor Michell Bowman saying more rate hikes are needed, while Susan Collins called for patience. Recently, San Francisco Fed President Mary Daly noted that the gradual rebalancing of labor market data is good news, but more is needed to determine further policy tightening. She echoed Collins's words that “Patience is a good strategy.”
That said, the Greenback continues to print modest gains as shown by the US Dollar Index (DXY) at 105.55, gains 0.16%. Nevertheless, traders booking profits seem the reason behind the AUD/USD’s strength, alongside the recent economic data revealed on the Aussie’s side.
PMIs in Australia were solid, showing a slight improvement compared to August PPMIs, particularly the Composite one. The Index rose by 50.2, crushing estimates of 47, boosted by the jump in the Services segment, while manufacturing activity continued to deteriorate. That alongside the Reserve Bank of Australia’s (RBA) monetary policy minutes showed the central bank considered hiking rates in September, cushioned the AUD/USD pair's fall, past the current week’s low of 0.6385.
For the next week, tier 1 data would feature on the Australia side the Consumer Price Index (CPI) monthly, Retail Sales, and Housing Credit. On the US front, Consumer Confidence, Durable Goods Orders, Initial Jobless Claims, and the Fed’s preferred gauge for inflation, the core PCE.
The AUD/USD remains consolidated at around the year's lows, unable to record a new cycle high, which could trigger a rally. However, a triple-bottom chart pattern is emerging, suggesting that further upside is expected. If the pair crosses the confluence of the 50-day moving average (DMA) and the latest swing high of August 30 at 0.6522, that could confirm its validity. The next resistance would be the 0.6600 figure, followed by the 200-DMA and the triple-top objective at 0.6695. Conversely, if price action remains subdued and drops below 0.6400, a re-test of the YTD low at 0.6357 is on the cards.
Next week, markets will continue to digest the outcomes of recent central bank meetings. Additionally, market participants will closely monitor the release of economic data, with a particular focus on inflation figures from the Eurozone and the US Core Personal Consumption Expenditure (PCE) index.
Here is what you need to know for next week:
The US Dollar Index recorded its tenth consecutive weekly gain, ending around 105.50. The DXY continues to trend upward, supported by US economic data and the recent Federal Reserve (Fed) meeting.
During the FOMC meeting, interest rates were left unchanged in the range of 5.25% to 5.50%. In terms of macroeconomic projections, most members still see the possibility of further rate hikes later this year. Economic data in the US showed mixed results, with housing data coming in weaker while Jobless Claims dropped to the lowest level since January.
Next week, the key focus in the US will be on Friday's release of the Fed's preferred measure of consumer inflation, the Core Personal Consumption Expenditure (PCE) Price Index. It is expected to show a decline from an annual rate of 4.2% to 3.9%. The third estimate of Q2 GDP will be released on Thursday.
The Japanese yen was among the worst-performing major currencies. The Bank of Japan (BoJ) left its monetary policy unchanged at the September meeting, with Governor Ueda stating that any change would only occur when the achievement of 2% inflation is in sight. Japan will release several economic indicators next Friday, including the Tokyo Consumer Price Index, Unemployment Rate, Industrial Production, Retail Sales, Consumer Confidence, and household spending for August. However, the focus will remain on the potential intervention from Japanese authorities to curb the yen's weakness. USD/JPY reached its highest level in decades above 148.00, supported by higher US yields and the BoJ's policy stance.
The British Pound lagged following the Bank of England's decision to keep interest rates unchanged after a slowdown in inflation in August. Next Friday, the UK will release a new estimate of Q2 GDP growth. GBP/USD declined for the third consecutive week, reaching its lowest level since March at 1.2232, before closing around 1.2260. The pair has strong support around 1.2200. EUR/GBP surged from below 0.8600 to 0.8700, marking its biggest weekly gains since February.
EUR/USD finished the week near 1.0650 after hitting fresh monthly lows at 1.0614. The Eurozone PMI provided some relief with a rebound on Friday. Inflation data will be crucial next week, with Spain and Germany kicking off with CPI on Thursday, followed by France, Italy, and the Eurozone on Friday.
The Swiss franc lost ground against major currencies after the Swiss National Bank (SNB) left its key interest rate unchanged at 1.75%. The Swissy was also influenced by the dovish stance of the European Central Bank. USD/CHF accelerated to the upside, breaking decisively above 0.9000 to its highest level since June. EUR/CHF surged from around 0.9550 to 0.9660.
AUD/USD continued to trade within a range between 0.6500 and 0.6350. Australia will release the Monthly Consumer Price Index on Wednesday, with the annual rate expected to rebound from 4.9% in July to 5.2% in August. Retail sales data will be released on Thursday.
The New Zealand Dollar was the best-performing major currency during the week. NZD/USD gained almost 1%, rising to 0.5975 but was unable to reclaim the 0.6000 level.
On a volatile week for metals market, Gold ended the week flat around $1,925 after recovering ground on Friday. Silver remained above $23.00 and closed around $23.50.
Like this article? Help us with some feedback by answering this survey:
The EUR/USD is trading into neutral ground heading into the end of the trading week, testing well-trodded ground near the 1.0660 handle.
US Purchasing Manager Index (PMI) figures came in off-kilter, triggering a soft walkback for the Greenback (USD) during the Friday trading session, but keeping losses limited to intraday boundaries.
European PMI figures earlier on Friday saw the Euro (EUR) ease back after an unexpected drop, with the manufacturing component printing at 43.4 versus the forecast 44.0.
The US Manufacturing PMI printed above expectations at 48.9 for September, compared to 47.9 for August, but the Services PMI component fell back to 50.2, reversing the market forecast increase to 50.6.
Eurozone Preliminary Manufacturing PMI unexpectedly falls to 43.4 in September vs. 44.0 expected
US S&P Global Manufacturing PMI improves to 48.9, Services PMI declines to 50.2 in September
The economic calendar looking forward is notably thin for the first half of next week, though traders will want to keep at least one eye on US Consumer Confidence on Tuesday, as well as Wednesday's Durable Goods Orders.
Market analysts see Durable Goods Orders for August slipping back only 0.4% after the previous reading of -5.2%.
The Euro has been cycling the 1.0660 level but has so far been unable to meaningfully mount the technical level, and is pacing familiar territory to close out the trading week.
The EUR/USD fell to a Friday low of 1.0615 but recovered to the top side near Friday's peak just north of 1.0670.
Hourly candles see the EUR/USD trading just south of the 200-hour Simple Moving Average (SMA) near 1.0685.
On the daily candlesticks, the Euro is decidedly bearish, continuing to decline through the 200-day SMA and down almost 5.5% from July's peak near 1.1275.
The 34-day Exponential Moving Average (EMA) is set to confirm a bearish cross of the 200-day SMA, and investors might be looking out for a relief rally to a major technical level before resuming another leg down.
Federal Reserve Bank of San Francisco President Mary C. Daly said on Friday that the Fed kept interest rates unchanged this week in recognition that “we are closer to our destination”. She added that inflation is coming down, and the labor market is gradually adjusting.
Regarding interest rates, Daly mentioned that they do not know if they need to hold interest rates at their current level or introduce more monetary tightening.
The US Dollar Index is holding onto weekly gains, hovering around 105.45, after being unable to consolidate above 105.50.
West Texas Intermediary (WT) US crude oil is struggling to hold onto the $90.00 price level as Friday trading leaves crude oil barrels trading mostly flat for the day, briefly piercing the major handle before falling back to near where the day's trading began.
Crude oil prices are seeing strong support looking forward, with global supply set to leave oil demand chronically undersupplied for the near future.
WTI US crude oil prices are up over 11% on the year, and have gained nearly 40% from the year's low at $64.31.
Market analysts broadly expect crude barrels to reach $100 in the future as global reserves of crude barrels dwindle away in what some experts calculate to be a 2 million bpd deficit in global production.
Saudi Arabia and Russia have extended production cuts worth a combined 1.3 million bpd through the end of the year, bolstering prices across the globe and sending production facilities into a buying frenzy to eat up the expanded margins on oil accumulation, further constraining available supply.
US crude oil has closed in the green for ten of the last twelve months. Daily candles see crude prices well above technical support, with the 200-day Simple Moving Average (SMA) near $77.00, well below current price action.
A rising trendline from late June's lows near $67.00 remains in place, and bullish momentum is currently running far away from the technical pattern.
The Relative Strength Index (RSI) and Moving Average Convergence-Divergence (MACD) indicators are both firmly planted in overbought territory, and it will take a significant profit-taking reversal to recover the indicator patterns.
The emerging market currency the Mexican Peso (MXN) counterattacks the US Dollar (USD) after the exotic pair reached a weekly high of 17.2489, but it has trimmed those gains. At the time of writing, the USD/MXN changes hands at 17.1478, down 0.48%.
Market sentiment remains positive, as shown by US equities trading with gains. Business activity in the United States (US) presented minuscule changes as revealed by S&P Global, with Manufacturing activity improving but standing in recessionary territory. Although expanded, the Services and Composite PMIs portrayed the country's economic slowdown.
Federal Reserve’s officials had been unleashed on the central bank space, led by the Boston Fed President Susan Collins. She suggested the possibility of further tightening while emphasizing the need for patience. Fed Governor Michell Bowman strongly determined that more rate hikes are necessary to control inflation.
Despite US central bank policymakers' hawkish rhetoric, the buck stands pressured. The US Dollar Index (DXY), which tracks the buck’s value vs. a basket of six currencies, prints minimal gains of 0.07%, at 10.45. Plunging US Treasury bond yields are a headwind for the USD/MXN, while also a tranche of upbeat Mexican data, supported the Peso.
Inflation in Mexico slowed down for the first half of September, hitting 4.44% YoY, down from 4.64% in August, below 4.46% forecasts. At the same time, the core Consumer Price Index rose 5.78%, above estimates of 5.76% YoY, but below August’s 6.21%. It should be said the Bank of Mexico (Banxico) held rates unchanged at 11.25% in the latest monetary policy meeting and emphasized the need to hold rates for a long period of time.
Given the backdrop, further USD/MXN downside is expected but capped around the 17.0000 figure. Traders should know about political developments, as Mexico is headed for general elections. That, alongside the latest economic budget beginning to generate worries about a revision of the country’s credit rating, can weigh on the Mexican Peso.
Although the USD/MXN pair is set to finish the week with gains, price action has failed to achieve a new cycle high, with buyers eyeing the September 7 high at 17.7074. A breach of that level could open the door to test the 18.0000 figure, but it must reclaim the 100-day moving average (DMA) at 17.1888. On the downside, the pair’s fall is cushioned by the 50-DMA at 17.0302, before challenging 17.0000.
The USD/JPY is set to close out the trading week just south of the 148.50 level after peaking at an intraday high of 148.40 as the US Dollar (USD) covers its bids on a mixed Purchasing Manager Index (PMI) reading.
The Bank of Japan (BoJ) kept the bottom band of its main policy rate at -0.1% early on Friday, which shook off some bullish momentum for the Yen (JPY).
BoJ’s Ueda: No change to way of policy decision making process
US S&P Global Manufacturing PMI improves to 48.9, Services PMI declines to 50.2 in September
Yen bulls found little love from the BoJ on Friday as the Japanese central bank reaffirmed its easy monetary policy stance until they see Japanese inflation maintaining 2% "in a stable manner". Inflation in the Japanese economy is on the high end for the time being, but price growth is expected to decline appreciably in the coming months, and the BoJ continues to be far off of a hawkish policy change.
US PMI figures came in somewhere in the middle, with manufacturing showing a minor improvement and services backsliding.
The US S&P Global Manufacturing PMI jumped further than expected, printing at 48.9 versus the expected 48, but the Services component missed to the downside, printing at 50.2 compared to the forecast 50.6. The mixed printing helped prop up the Greenback against the Yen, but kept gains restrained within the previous day's highs.
Thursday's backslide saw the USD/JPY fall to the 200-hour Simple Moving Average (SMA) before giving a rebound through early Friday trading.
The pair has gained steadily through the week, and is set to finish on the high end, currently looking for a foothold just beneath the week's peak of 148.46.
On the daily candlesticks the USD/JPY is decidedly bullish, up nearly 8% from July's bottom near 137.20. Bullish price momentum is seeing technical support from the 34-day Exponential Moving Average (EMA), and the US Dollar has gained over 13% against the Japanese Yen so far this year.
The New Zealand Dollar (NZD) stages a recovery against the US Dollar (USD) ahead of the weekend as investors' sentiment improved, while the Greenback is trading soft, undermined by a fall in US Treasury bond yields. The NZD/USD is trading at 0.5977 after bouncing from a daily low of 0.5919.
Wall Street is trading in the green due to improved risk appetite. A report from S&P Global showed that business activity in the United States (US) was almost unchanged in September. The S&P Global Manufacturing PMI improved to 48.9 from 47.9 a month earlier, exceeding estimates but remained in contractionary territory, while the Services PMI dipped to 50.2 from 50.5 in July, below forecasts. The Composite reading, which offers a general view of business activity, was aligned with estimates at 50.1 but trailed August’s 50.2
Aside from this, US central bank officials had been unleashed, with Boston Fed President Susan Collins saying that further tightening is possible, though “patience” is required. Echoing some of her comments was Fed’s Governor Michell Bowman, who was more determined, saying that more rate hikes are needed to control inflation.
Although Fed officials' comments were hawkish, the Greenback failed to gain traction. The US Dollar Index (DXY), which measures the buck’s value against its peers, climbs just 0.09%, at 105.47, after dropping from 10578 high. US Treasury bond yields continued to weaken across the short and long end of the curve.
On the New Zealand (NZ) front, data revealed on Friday’s session that consumer confidence weakened in the third quarter regarding the economic outlook, with the index falling to 80.2 from 83.1. The agenda revealed the Trade Balance showed an improvement in the annual trade deficit to $15.54B for August $-1588B from prior figures.
For the next week, the economic agenda in the US would feature the Conference Board (CB) Consumer Confidence, Durable Good Orders, Initial Jobless Claims, and the Fed’s preferred gauge for inflation, the Core PCE. The docket would feature the Business and Consumer Confidence on the NZ front.
The pair bottomed out at around 0.5859, and since then, the NZD/USD has staged a comeback despite recent US Dollar strength. During the last three days, the currency pair has remained volatile, unable to get a clear direction, though it remains slightly tilted to the downside. However, further upside is expected if buyers lift the exchange rate past the September 1 swing high at 0.6015. Conversely, sellers must reclaim the September 21 low of 0.5895.
EUR/USD is approaching 1.06. Economists at Commerzbank analyze the pair’s outlook.
In the medium term, we expect the Fed to lower its key rate again next year as the US economy cools. At the same time, the ECB is likely to keep interest rates on hold despite declining inflation and increasing headwinds for the Eurozone economy. This means that the ECB is taking a much more hawkish stance than the Fed, which should benefit the Euro. However, it is unclear when exactly the FX market will react to the divergence in monetary policy. As a result, the EUR is likely to appreciate less gradually than our forecast suggests.
In the long run, however, EUR strength is unlikely to be sustainable. According to our economists, the ECB is likely to succeed in controlling inflation to a lesser extent than the Fed in the long term. Regardless of which of the two central banks offers the highest real interest rate on its respective currency, this is likely to result in the Euro suffering from an increased inflation risk premium.
EUR/USD – Sep-23 1.10 Dec-23 1.14 Mar-24 1.15 Jun-24 1.15 Sep-24 1.14 Dec-24 1.12
GBP dropped this week on the back of the BoE’s unchanged policy decision. Economists at Rabobank have revised down their six-month EUR/GBP forecast modestly.
The dip in GBP after the steady policy decision from the BoE this week has lifted EUR/GBP towards the top of its range, just shy of 0.87.
This month, the ECB revised lower its growth projections for the region significantly. However, these still seem optimistic compared with our own forecast for the Eurozone of technical recession in H2 2023 followed by a very shallow recovery next year. In view of this outlook, we see risk of EUR/GBP dipping to 0.85 on a three-to-six-month view.
We continue to expect Cable to languish around 1.23 into year-end, with downside risk to this view on the back of the resilience of the US economy and a strong USD.
Further interest rate increases will likely be appropriate, with inflation still being too high, Federal Reserve Governor Michelle Bowman said on Friday, per Reuters.
"Fed policy will need to be held at a restrictive level for some time to return inflation to 2% 'in a timely way."
"Continued risk of a further increase in energy prices could reverse some of the recent progress on lowering inflation."
"The economy is still growing at a solid pace, with robust consumer spending and solid job gains."
"Bank lending standards have tightened but there is no sign of a sharp contraction of credit that would significantly slow the economy."
"Expecting progress on inflation to be slow under current conditions, suggesting the need for even tighter policy."
These comments failed to trigger a noticeable market reaction and the US Dollar Index was last seen posting small daily losses at 105.36.
Economists at Crédit Agricole highlight uncertainties surrounding a potential US government shutdown and its implications for the USD.
The expectation is that a resolution will be reached before the 1 October deadline, possibly by pushing the spending bill to early December. Post this deadline, non-essential federal agencies will cease their operations. However, increasing uncertainty is being introduced by the Freedom Caucus, who have indicated that they might vote against any interim solutions.
If a resolution to prevent the shutdown is reached before the deadline, it could potentially offer some relief and support to the USD. On the other hand, the increasing political uncertainty brought on by parties like the Freedom Caucus could cast a shadow over the USD's near-term outlook. If market participants believe that a shutdown is becoming more likely or if the situation turns more contentious, we could see heightened volatility and possibly a weaker USD in the short term.
Signs of stabilisation in China’s economy should provide some support to commodity markets. Nevertheless, the adjustment to a lower growth profile will ultimately cap the upside, strategists at ANZ Bank report.
Expectations of a soft landing in China are providing some hope for commodity markets. This should boost sentiment and lead to stronger demand that will extend the recent rally into year-end.
However, there are some upside limits. China’s structural issues – worsening demographics, lack of productivity improvement and trade tension – remain. Nevertheless, a stabilisation in its economic activity should be a welcome relief for commodity markets, and we expect them to track higher in Q4.
Ultimately, the strength of the rally will be determined by the broader macro backdrop.
The price of a barrel of Brent Oil rose to a good $90 at the beginning of September. Strategists at Commerzbank analyze Oil’s outlook.
The Oil market should be significantly undersupplied in the second half of the year and inventories should continue to fall appreciably in the coming months.
Demand concerns stand in the way of a further price increase. For example, the economic recovery in China has noticeably lost momentum, so Oil demand should rise more slowly from now on. Oil demand in the US and Europe is likely to be curbed by the expected recession.
We see only limited upside potential for the price of Crude Oil in the short term and a price level of $85 per barrel at the end of the year.
Silver price (XAG/USD) turns sideways after a vertical upside move to near crucial resistance of $23.70 in the early New York session. The white metal struggles for a direction as the US Dollar Index (DXY) demonstrates a squeeze in volatility after an unchanged interest rate decision by the Federal Reserve (Fed) as expected.
The Fed delivered a hawkish commentary on interest rates and sees inflation getting controlled in 2026. Interest rates are expected to remain lofty long enough’ till the achievement of price stability.
S&P500 opened on a positive note on Friday, portraying some improvement in appeal for risk-sensitive currencies. While the broader bias is bearish as fears of a global slowdown are intact. The USD Index remains choppy despite the subdued preliminary PMI report for September, released by the S&P Global. The 10-year US Treasury yields rebounded sharply to
The Manufacturing PMI landed at 48.0 in line with expectations and slightly higher than the former reading of 47.9. The economic data has been contracting for a long period, a figure below 50.0 is itself considered a contraction in economic activities. The Services PMI, which tracks a sector that accounts for two-thirds of the US economy, dropped to 50.2 vs. expectations of 50.6 and the former release of 50.5.
Silver price trades in a Rising Wedge chart pattern on a two-hour scale, in which pullbacks are considered buying opportunities by market participants till the volatility contraction. Upward-sloping 20-period Exponential Moving Average (EMA) at $23.48 indicates that the short-term trend is bullish.
The Relative Strength Index (RSI) (14) shifts into the bullish range of 60.00-80.00, which indicates that the bullish impulse has been triggered.
"I expect rates may have to stay higher, and for longer, than previous projections had suggested," Federal Reserve Bank of Boston President Susan Collins said on Friday and added that further tightening is certainly not off the table, per Reuters.
"Optimistic inflation can fall with only a modest rise in unemployment."
"Current policymaking requires considerable patience to get the right signal from data."
"Inflation remains too high despite encouraging news from recent readings."
"Important aspects of inflation, like core services excluding shelter, have not yet shown a sustained improvement."
"Continued above-trend economic activity means it's too soon to be confident inflation is beaten."
The US Dollar Index lost its traction and declined below 105.50 in the American session, erasing its daily gains in the process.
Economists at TDS analyze the implications of interventions from Japan for the USD/JPY pair.
Mof officials (e.g., Suzuki, Matsuno) repeated the JPY jawboning today in a warning to speculators that imminent intervention is on the table, especially with USD/JPY on a path towards 150.
The JPY weakness is taking a hit on Kishida's popularity in the polls which probably nudged the government to unveil a new set of economic measures next week. We doubt authorities want media headlines on JPY weakness to overshadow the fiscal announcements, and lean towards them pulling the intervention trigger.
If they intervene >150, watching 146.5 as first support before a retest of the psychological 145 level again – past intervention efforts usually have an initial effect of a 5 big-figure drop in USD/JPY.
The Fed left key interest rates unchanged. The dot plot has a more hawkish tilt, economists at Société Générale report.
We side with no further tightening.
While inflation remains elevated and employment markets tight, the Fed should hold a bias for hikes.
The communications accompanying the FOMC meeting – the statement, the summary of economic projections and the press conference – signal a modestly higher chance of one more hike.
Data dependency remains.
See: The Fed’s updated guidance should reinforce the USD’s upward momentum in the near-term – MUFG
S&P Global Manufacturing PMI improved to 48.9 in early September from 47.9 in August, pointing to an ongoing contraction in the manufacturing sector's business activity at a softening pace. The Services PMI edged lower to 50.2 from 50.5 in the same period and the Composite PMI arrived at 50.1, down slightly from 50.2 in August.
Commenting on PMI surveys' findings, “PMI data for September added to concerns regarding the trajectory of demand conditions in the US economy following interest rate hikes and elevated inflation," said Siân Jones, Principal Economist at S&P Global Market Intelligence.
"Although the overall Output Index remained above the 50.0 mark, it was only fractionally so, with a broad stagnation in total activity signalled for the second month running," Jones added and said that the service sector lost further momentum, with the contraction in new orders gaining speed.
The US Dollar Index edged slightly lower after these data and was last seen gaining 0.1% on the day at 105.48.
Gold price yo-yoing after Fed meeting. Strategists at Commerzbank analyze the yellow metal’s outlook.
Short-term-oriented financial investors are probably chiefly to blame for the price fluctuations. The somewhat longer-term-oriented ETF investors remain on the retreat in any case: outflows have now been reported again on an almost continuous basis since the start of the quarter.
We assume that the price performance in the coming weeks will continue to be dictated by US economic and inflation data because they will mainly determine the Fed’s interest rate policy.
Until there are clear signs that an interest rate turnaround is on the cards, the Gold price – as driven by data – is likely to fluctuate without any clear direction.
The European Central Bank's (ECB) 4% policy rate has to be held sufficiently long, ECB Chief Economist Phillip Lane said on Friday and reiterated that the central bank is still very data-dependent.
Lane noted that the Euro area economy this year will be "fairly muted" and added that there are a lot of reasons for the economy to stagnate this year.
These comments don't seem to be having a significant impact on the Euro's performance against its major rivals. As of writing, the EUR/USD pair was down 0.1% on the day at 1.0648.
What will happen if US inflation remains permanently lower than Eurozone inflation? Economists at Natixis see three main consequences.
It is possible that inflation in the US will remain lower than inflation in the Eurozone for a long time, due to: The Federal Reserve’s faster response to inflation than that of the ECB; The weaker bargaining power of wage earners in the US; Changes in labour productivity and corporate profit margins.
What would be the consequences of persistently lower inflation in the US than in the Eurozone? We can expect: A faster fall in interest rates in the US than in the Eurozone; An appreciation of the Euro against the Dollar and a cost competitiveness problem for the Eurozone; A penalisation of investment in the Eurozone.
EUR/USD keeps the negative price action well in place and retreats to fresh multi-month lows around 1.0615 on Friday.
If the pair breaches this level in the short-term horizon, it could then open the door to a potential retracement to the March low of 1.0516 (Mar 8), which is the last defence ahead of an assault on the 2023 low at 1.0481 (January 6).
While below the key 200-day SMA at 1.0828, the pair is likely to face extra weakness.
"Based on the information available today and using a range of analytical tools, we can say that the interest rate level we have now reached, if maintained for a sufficiently long time, is broadly consistent with achieving our inflation target in the medium term," European Central Bank (ECB) policymaker Pablo Hernandez de Cos told Germany's Börsen-Zeitung on Friday, per Reuters.
He added that the underlying inflation in the Eurozone was now easing and said that it was too early to talk about interest rate cuts.
EUR/USD showed no immediate reaction to these comments and was last seen trading virtually unchanged on the day at 1.0655.
Mexico's central bank (Banxico) will meet next week to decide on its interest rate. Economists at Commerzbank analyze MXN outlook.
Banxico's cautious stance to date and the Fed's ‘higher for longer’ outlook suggest that Banxico will maintain its hawkish stance for the time being.
After all, the Mexican economic outlook should also benefit from the improved chances of a soft landing in the US, and further upside risks to inflation could arise from the government's more expansionary spending plans in the upcoming election year. In our view, this all points to continued MXN strength for the time being.
The USD/CAD pair finds interim support near 1.3430 after Statistics Canada reported mixed Retail Sales report for July. Consumer spending expanded at a slower pace of 0.3% vs. expectations of 0.4%. In June, Retail Sales expanded nominally by 0.1%.
Retail Sales excluding automobiles expanded strongly by a full one percent, doubling expectations of 0.5%. The economic data was contracted by 0.7% in June. Scrutiny of the Retail Sales report shows that demand for automobiles remained weak. Households postponed demand for automobiles to avoid higher interest obligations.
The Canadian Dollar remains strong as the oil price is preparing for a fresh upside above the immediate resistance of $91.00. More upside in the oil price is anticipated due to deepening supply concerns and expectations of an end to the global rate-hike cycle. It is worth noting that Canada is the leading exporter of oil to the United States and higher oil prices support the Canadian Dollar.
This week, Canada’s inflation data for August remained mixed. Headline Consumer Price Index (CPI) expanded at a higher pace of 0.4% vs. expectations of 0.2% due to rising energy prices. The Bank of Canada (BoC) takes core inflation into account for the monetary policy framework, therefore, the impact of the recovery in gasoline prices would be limited.
Meanwhile, the US Dollar struggles to find a direction as investors remain mixed about whether the Federal Reserve (Fed) will keep interest rates unchanged in the remainder year or will hike one more time. As per the CME Fedwatch tool, traders see a 71% chance for interest rates remaining steady at 5.25%-5.50% in the November monetary policy meeting.
DXY resumes the uptrend and reaches fresh six-month highs in the 105.75/80 band at the end of the week.
The continuation of the upside momentum in the index is expected to challenge the 2023 top at 105.88 (March 8) sooner rather than later. The surpass of this level could put a move to the round level at 106.00 rapidly back on the radar.
While above the key 200-day SMA, today at 103.04, the outlook for the index is expected to remain constructive.
The Bank of Japan left the policy settings unchanged. The Yen has weakened following the decision. Economists at TD Securities analyze USD/JPY outlook.
It was a boring BoJ meeting with no fireworks, as all members voted unanimously to leave policy levers unchanged. The statement was also largely similar to July and there was no change in forward guidance.
Ueda's press conference also disappointed JPY bulls and those looking for hints of an exit from YCC/negative rates (including ourselves). He didn't lean against JPY weakness and just reiterated that FX should reflect fundamentals and move in a stable manner. As such the task lies with MoF officials to cap JPY weakness and there is little resistance for USD/JPY to break above 150 given the drift higher in US yields.
Retail Sales in Canada rose 0.3% on a monthly basis in July, Statistics Canada reported on Friday. This reading came in slightly below the market expectation for an increase of 0.4% and followed the 0.7% decrease (revised from 0.8%) recorded in June.
Retail Sales ex-Autos grew 1% in the same period, surpassing analysts' estimate of 0.5%.
USD/CAD pair stays under modest bearish pressure after this report and was last seen losing 0.4% on a daily basis at 1.3430.
The USD/CHF pair traded in a narrow range near 0.9050 in the late European session. The Swiss Franc asset has remained in the grip of bulls broadly as the Swiss National Bank (SNB) announced a steady interest rate decision on Thursday, keeping interest rates at 1.7% while investors anticipated an interest rate increase by 25 basis points (bps) to 2%.
SNB Chairman Thomas J. Jordan and other policymakers decided to deliver a steady monetary policy for the first time since March 2022 when the central bank initiated its rate-tightening cycle to cool down inflationary pressures.
About the interest rate outlook, the SNB left doors open for further policy tightening. SNB Jordan cited that the current inflation situation has bought us time to assess whether measures taken to date are sufficient to keep inflation comfortably below 2%.
Meanwhile, S&P500 futures generated some decent gains in the London session, portraying nominal improvement in appeal for risk-perceived assets. The US Dollar Index (DXY) demonstrates a sideways trend as uncertainty about the interest rate peak elevated after the Federal Reserve’s (Fed) hawkish outlook.
The upside in the USD Index seems restricted for now as investors see no signs of a hike by the Fed in its November monetary policy. Going forward, investors will focus on preliminary PMIs for September from the S&P Global, which will be published at 13:45 GMT.
According to a preliminary report, The Manufacturing PMI is seen improving marginally to 48.0 from the August reading of 47.9. The Services PMI, which tracks a sector that accounts for two-thirds of the US economy, is anticipated to rise to 50.6 from 50.5 in August.
GBP weakness extends. Economists at Scotiabank analyze Cable’s outlook.
New cycle lows for the GBP and strongly aligned bear signals on the short, medium and long-term trend strength oscillator imply more downside risk for Sterling.
Loss of support in the 1.24 zone targets additional losses to 1.21/1.22.
Resistance is 1.2350.
The USD remains firm. Economists at Scotiabank analyze Greenback’s outlook.
The DXY looks poised to lock in a tenth, consecutive weekly gain. US yields popped to new cycle highs following the Fed decision Wednesday and are maintaining gains through their former 2023 highs across the curve.
The high for longer narrative that has emerged after the FOMC decision is USD supportive but even with yields above recent highs, the USD’s broader valuation looks a little overdone; stretched valuation, even in the short run, plus the extended USD run higher over the past 2 1/2 months leaves the door pretty wide open for some deeper USD consolidation ahead (particularly considering strike, government shutdown risks).
Loonie resists US Dollar’s advance. Economists at Scotiabank analyze the USD/CAD technical outlook.
Spot gains through 1.35 were strongly rejected on the short-term chart on Thursday and funds retain a firm downward bias in the short run on the back of still bearishly-aligned DMI oscillators for the USD.
Intraday losses through 1.3465 should extend further back to the 1.34 area in the next day or so. The 1.3375/1.3395 area remains firm support, however.
Resistance is seen at 1.3500/1.3520.
The US Dollar (USD) had another strong day on Thursday, booking gains against nearly every major G20 currency. Backed by higher US yields, the Greenback advances in an environment where the rate differential seems to be the driving factor to determine which currency weakens and which appreciates. With the US 10-year yield hitting 4.51%, breaking above the high of October 2007, it looks like King Dollar is affirming its earned title.
There might be some tempering to this party depending on the US Purchasing Managers Index (PMI) data released by S&P Global later Friday. The data will provide fresh insight on the state of the country’s key manufacturing and services in September, after August data showed that manufacturing activity dropped into contraction and services recorded a very mild expansion.. Should both numbers fall fully into contraction, expect to see some unwinds from those US Dollar long positions toward the weekend.
The US Dollar looks set to close this week with another positive print in the US Dollar index (DXY). King Dollar has yet again confirmed its status, though there looks to be some fatigue creeping in the price action. This afternoon’s PMI numbers will be crucial to either see a final attempt for a new yearly high or rather a drop back to 105.00 or lower.
The US Dollar Index (DXY) goes sideways after reaching 105.68 on Thursday. Should the DXY close above the yearly high near 105.88, expect the US Dollar to follow on with more bullish moves in the medium term. US yields will remain crucial to support current levels in the DXY.
On the downside, the 104.44 level seen on August 25 kept the Index supported on Monday, halting the DXY from selling off any further. Should the uptick that started on September 12 reverse and 104.44 give way, a substantial downturn could take place to 103.04, where the 200-day Simple Moving Average (SMA) comes into play for support.
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
EUR/USD losses continue to coalesce around the low 1.06 support zone. Economists at Scotiabank analyze the pair’s outlook.
The EUR is weak but, with 10 weeks of consecutive losses under it now and support in the low 1.06 area (long-term retracement support at 1.0612) holding, there is a chance of some stabilization or recovery in the EUR in the near-term.
Short-term price action suggests solid demand on dips to the 1.0620 zone.
Gains through 1.0670/1.0675 should signal additional gains ahead.
EUR/JPY reverses Thursday’s marked pullback and resumes the upside momentum past the 158.00 hurdle at the end of the week.
In the meantime, the cross remains stuck within the consolidative range and the breakout of it exposes a visit to the so far monthly high of 158.65 (September 13) prior to the 2023 top at 159.76 (August 30), which precedes the key round level at 160.00.
The surpass of the latter should not see any resistance level of note until the 2008 high at 169.96 (July 23).
So far, the longer term positive outlook for the cross appears favoured while above the 200-day SMA, today at 149.09.
Economist Lee Sue Ann at UOB Group assesses the latest GDP figures in New Zealand.
GDP rose by 0.9% q/q in 2Q23, surpassing expectations for a reading of 0.4% q/q. 1Q23 GDP was revised to unchanged from a 0.1% q/q contraction, meaning the economy did not shrink for two straight quarters and narrowly avoided a recession. Compared to the same period one year ago, GDP rose by 1.8% y/y. This follows a 2.2% y/y print in 1Q23, more than expectations of 1.2% y/y
Overall, we are cautioning against reading too much into today’s GDP report as it is difficult to ascertain how much of upside is noise-driven from the rebound due to the cyclone disruption. Our view is that the economy is likely to experience further weakness ahead, despite unemployment remaining close to record-lows of 3.4%. We have, nonetheless revised our growth forecast for 2023 to 0.9%, from 0.7% previously.
There is a risk that the Reserve Bank of New Zealand (RBNZ) may raise its official cash rate (OCR) once more by 25bps. But we think the RBNZ will opt to pause in Oct, and will likely wait till the 29 Nov monetary policy meeting, with the benefit of having the 2Q23 CPI figures (17 Oct). We will hence be waiting for 2Q23 CPI figures next month, before making any changes to our OCR forecasts.
Oil prices are entering a calmer pattern that is more than welcome to the overheated rally in both WTI Crude and Brent oil prices. Traders will want to see the print of the Baker Hughes Rig Count later this Friday if it has bottomed out and a more gradual rise is being noticed with more rigs coming online. Some demand could pick up next week as recent reports show China crude inventories are at their lowest level since June.
The US Dollar (USD) had another strong day on Thursday, booking gains against nearly every major G20 currency. Backed by higher US yields, the Greenback advances in an environment where the rate differential seems to be the driving factor to determine which currency weakens and which appreciates. With the US 10-year yield hitting 4.51%, breaking above the high all the way back in October 2007, it looks like King Dollar is affirming its earned title.
Crude Oil (WTI) price trades at $89.46 per barrel, and Brent Oil trades at $92.37 at the time of writing.
Oil prices are entering a bit of a calm path after the very steep and headline-driven moves seen in the past few weeks. At the moment it looks like WTI Crude price will fade ahead of making a new yearly high. A technical floor is identified and would cool down the Relative Strength Index (RSI) and might see crude breaking $93 later this year.
On the upside, the double top from October andNovember of last year at $93.12 remains the level to beat. Although this looks very much in reach, markets have already priced in a lot of possible supply deficits and a bullish outlook. Should $93.12 be taken out, look for $97.11, the high of August 2022.
On the downside, a new floor is formed near $88 with the high of September 5 and 11 underpinning the current price action. Proof of that already exists with the dip of September 21 that reversed ahead of $88. Should $88 break nonetheless, the peak of August 10 needs to be enough to catch the dip near $84.20.
WTI US OIL daily chart
Supply and demand dynamics are a key factor influencing Natural Gas prices, and are themselves influenced by global economic growth, industrial activity, population growth, production levels, and inventories. The weather impacts Natural Gas prices because more Gas is used during cold winters and hot summers for heating and cooling. Competition from other energy sources impacts prices as consumers may switch to cheaper sources. Geopolitical events are factors as exemplified by the war in Ukraine. Government policies relating to extraction, transportation, and environmental issues also impact prices.
The main economic release influencing Natural Gas prices is the weekly inventory bulletin from the Energy Information Administration (EIA), a US government agency that produces US gas market data. The EIA Gas bulletin usually comes out on Thursday at 14:30 GMT, a day after the EIA publishes its weekly Oil bulletin. Economic data from large consumers of Natural Gas can impact supply and demand, the largest of which include China, Germany and Japan. Natural Gas is primarily priced and traded in US Dollars, thus economic releases impacting the US Dollar are also factors.
The US Dollar is the world’s reserve currency and most commodities, including Natural Gas are priced and traded on international markets in US Dollars. As such, the value of the US Dollar is a factor in the price of Natural Gas, because if the Dollar strengthens it means less Dollars are required to buy the same volume of Gas (the price falls), and vice versa if USD strengthens.
The BoE delivered a surprise by leaving their policy rate unchanged at 5.25% at the latest MPC meeting. The BoE’s policy update has reinforced the recent correction lower for the Pound. Economists at MUFG Bank analyze GBP outlook.
Slim majority (5 vs. 4) of MPC members voted to leave policy rate unchanged. Decision was finely balanced but case for another hike was not as compelling. Updated guidance signals shift towards keeping rates high for longer. Modest pick-up planned for pace of QT in year ahead.
While the UK rate market has already moved a long way now to price out further BoE hikes, the Pound is still vulnerable to further near-term weakness with evidence building that the UK economy is responding more to tighter monetary policy.
The USD/MXN pair has shifted its auction above the crucial resistance of 17.00 on Friday. The asset strengthens as the US Dollar remains firm despite the Federal Reserve (Fed) announcing an unchanged interest rate decision on Wednesday as anticipated by market participants.
S&P500 futures added some gains in the European session, portraying an ease in the risk-off market mood. The broader trend is still opposing the appeal for risk-sensitive currencies due to the upside risks of a global slowdown.
The US Dollar Index (DXY) remains directionless near a six-month high around 105.70 amid uncertainty over the interest rate peak. Fed policymakers delivered a hawkish interest rate outlook at the Federal Open Market Committee (FOMC) meeting, hinting at one more interest rate increase of 25 basis points (bps), which will push interest rates to 5.50%-5.75%.
Meanwhile, investors will focus on the release of the preliminary S&P Global PMIs for September, which will be released at 13:15 GMT. The Manufacturing PMI is expected to improve marginally to 48.0 from the August reading of 47.9. The Services PMI, which tracks a sector that accounts for two-thirds of the US economy, is anticipated to rise to 50.6 from 50.5 in August.
On the Mexican Peso, investors focus on the interest rate decision from the Bank of Mexico (Banxico), which will be announced next week. The Mexico central bank has maintained interest rates unchanged at 11.25% in the past three monetary policies.
Economists at Société Générale cited strong growth outperformance and progress on inflation containment have helped MXN to eclipse the EM currency complex this year. However, headwinds are accumulating from currently rich valuations, shifts in the Developed Markets rates paradigm, and changes to domestic policies regarding currency intervention.
USD/JPY has risen above 148. Economists at Société Générale analyze the pair’s technical outlook.
USD/JPY has staged recent leg of uptrend within two converging lines resembling a rising wedge; the pattern generally denotes receding upward momentum. This is also highlighted by daily MACD which has turned flat. However, signals of reversal in price action are not yet visible.
A break below recent pivot low at 145.90 is crucial to affirm a short-term down move.
Next potential hurdles are located at projections of 149.20 and 150.30.
The Yuan (CNY) is increasingly being used for trade, investment and as a reserve currency in Africa. Strong trade trends support more trade settled in CNY, economists at Standard Chartered report.
CNY is being used for trade and investment in Africa and features as a reserve currency.
Strong trade links, especially African imports from China, mean trade settled in CNY is likely to grow further.
South Africa, CDI and Kenya are top markets for CNY cross-border payments; we expect Nigeria to catch up.
Alvin Liew, Senior Economist at UOB Group, reviews the latest FOMC event.
The Fed in its 19/20 Sep 2023 Federal Open Market Committee (FOMC) meeting, unanimously agreed to keep the target range of its Fed Funds Target Rate (FFTR) unchanged at 5.25%-5.50%. This was the second pause in the Fed’s current rate hike cycle after having raised rates for ten meetings in a row before taking a first pause in June followed by another 25-bps hike in Jul. The Fed also voted unanimously to keep the interest rate paid on reserve (IOER) balances unchanged at 5.40%.
The text of the Sep monetary policy statement (MPS) was largely a carbon-copy of Jul’s statement, with the significant change in the text only on the economy which is seen as more bullish, in line with the markedly upgraded GDP growth forecasts, especially for 2023. At the same time, the unemployment rate projection saw further improvement across the forecast period. The totality of the language of the text and the forecast adjustments on both the economy and unemployment rate in the Sep Summary of Economic Projections (SEP), reinforce the probability of Fed achieving that “soft landing”.
The most consequential release of the Sep FOMC is likely the Dotplot which indicated strong (but not unanimous) support among policy members for one more hike in 2023. Importantly, the Sep Dotplot showed 10 of the 19 FOMC members expect the policy rate to remain above 5% next year (versus just 6 members who echoed that view in Jun) while only 2 members expect rates to fall below 4.5% in the Sep Dotplot (versus 8 members indicated that in Jun FOMC). The implication is very clear, that expectations for rate cuts in 2024 has been drastically curbed and Fed policy could remain tight for a much longer duration than what we previously believed.
FOMC Outlook – One More Hike In Nov & A Later Timeline For Cuts The latest Dotplot’s hawkish upward revision together with SEP’s “soft landing” projections is making us reassess (again) the terminal rate, especially against the still elevated headline and core PCE this year, and potentially higher energy prices adding to the price re-acceleration process. We now expect the Fed to hike one final time by 25-bps in the Nov 2023 FOMC and pause thereafter. This means, with the FFTR currently at 5.25-5.50%, we are adjusting our terminal FFTR level higher to 5.50-5.75%, which unsurprisingly is forecast to last through 2023.
We also expect the Fed rate cuts to be delayed till mid-2024 (from previous forecast of 1Q 24) and at a less aggressive pace of just 75 bps of rate cuts for 2024 (from previous forecast of -125bps). And while we think the Fed will hike once more, but as Powell alluded to during Sep FOMC press conference (“We’re fairly close, we think, to where we need to get”), the [hiking] cycle is near the end, we still hold the view the FFTR is unlikely to go to 6%.
West Texas Intermediate (WTI), futures on NYMEX, juggle in a narrow range inside Thursday’s trading range of $88.30-91.00. The oil price gathers strength to break above the crucial resistance of $91.00 as investors see an end to the global rate-tightening cycle due to upside risks of slowdown.
Fears of a global slowdown have heightened as global manufacturing and services PMIs have been underperforming. Global banks have downgraded Gross Domestic Product (GDP) projections for the second half of Western economies as firms are struggling to address their lofty interest obligations. Organization for Economic Development (OECD) cuts its global GDP growth rate to 2.7% for 2024 from the previous forecast of 2.9%.
While global central bankers are expected to conclude their historically aggressive rate-tightening spell, risks of a slowdown will remain intact as they have been reiterating on keeping them higher long enough’ till the achievement of price stability.
In addition to that, deepening supply concerns due to the ban on fuel exports from Russia and OPEC’s production cuts have outperformed the hawkish interest rate outlook from the Federal Reserve (Fed). The Fed supported an interest rate peak at 5.75%, which calls for expectations of one more interest rate increase in the remainder year.
Meanwhile, investors will shift focus on preliminary global Manufacturing PMIs, which will start releasing from next week. Bulls could lose grip over the oil price if factory activities continue to remain vulnerable due to a deteriorating demand outlook.
Sterling eased as a result of the BoE decision. Economists at Commerzbank report.
The BoE did leave the door open for another rate hike, and the vote in favour of a pause was remarkably tight at 5:4. The other four members voted for a 25 bps rate hike. This illustrates once again the high uncertainty in connection with the inflation and economic outlook.
The question that arises now is how the BoE will react if price pressure does not fall as rapidly over the coming months as currently expected. The market is likely to see the BoE’s determination sceptically which is likely to put pressure on Sterling.
If the inflation outlook were to improve significantly Sterling might be able to recover slightly. At that point, the expectations that the BoE will cut its key rate due to the weak economy will then probably increase though. One way or the other prospects for Sterling remain subdued.
AUD/USD snaps a two-day losing streak, trading higher near 0.6440 during the European session on Friday. The pair is receiving upward support as the US Dollar (USD) retraces a portion of its intraday gains.
The pullback in US Treasury yields might have limited the upside potential of the Greenback. The yield on the 10-year US bond stands at 4.46%. The US Dollar Index (DXY), which measures the performance of the Greenback against six other major currencies, is trading at around 105.60 at the time of this report.
Market participants are likely awaiting economic data releases, including the preliminary United States (US) S&P Global PMIs for September. These datasets may provide valuable insights into the economic conditions and assist traders in identifying potential trading opportunities around the AUD/USD pair.
During the Wednesday meeting, the Federal Reserve (Fed) opted to maintain interest rates within the 5.25-5.50% range. Fed Chairman Jerome Powell, in a subsequent press conference, reiterated the Fed's commitment to achieving a 2% inflation target. Powell also mentioned that the Fed is prepared to raise rates if deemed necessary. The Fed's hawkish stance could exert pressure on the Aussie pair.
On the other side, a survey has indicated that Australia's private sector returned to growth in September after two consecutive months of contraction, providing some support to the AUD/USD pair. The Judo Bank Flash Australia Composite PMI saw an improvement, rising from 48.0 in August to 50.2 in the reported month.
Additionally, the Australian Services PMI reached a four-month high, registering 50.5 for September, up from 47.8 in August. However, the Manufacturing PMI remained in contraction territory, declining to 48.2 from 49.6 in the previous month. This contraction in the manufacturing sector has tempered bullish sentiment around the Australian Dollar (AUD), preventing aggressive bullish bets on the currency.
Gold price (XAU/USD) struggles to find a direction as investors remain uncertain about the interest rate peak after the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. The precious metal trades inside Thursday’s range as the upside is restricted due to the US economic resilience, which has been keeping expectations alive over one more interest rate increase from the Fed. On the downside, Gold also looks well supported due to consistently falling core inflation.
While the US economy has remained strong on the grounds of labor demand, wage growth, services sector activity, and consumer spending, the country’s manufacturing sector has remained a major concern. US factory activity has been contracting for a long time, and further pressure cannot be ruled out as firms aim to control costs through lower inventory backup to avoid higher working capital requirements.
Gold price recovers after a correction to near $1,915.00. The precious metal trades inside Thursday’s range around $1,925.00. The broader trend is sideways amid uncertainty over the interest rate peak. The precious metal is consistently taking support near the 200-day Exponential Moving Average (EMA) at $1,910.00, exposed to further downside as investors are using the pullbacks as selling opportunities.
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
The Yen has weakened further following the BoJ’s latest policy meeting. Economists at MUFG Bank analyze JPY outlook.
The BoJ left their policy settings unchanged. There has been a pick-up in speculation recently over the possibility of the BoJ bringing forward rate hike plans. However, the comments from Governor Ueda today appear to have been carefully crafted not to further encourage those expectations.
The lack of clarity over the timing of any further adjustment in policy seems to be a step back from his comments to the Yomiuri newspaper last week when he indicated that the BoJ could have enough information about wages to judge if they will continue to rise by year-end and talked about the possibility of raising rates.
It leaves the Yen vulnerable to further weakness in the near-term. However, the move higher in USD/JPY will continue to be dampened by the heightened risk of intervention from Japan to support the Yen.
Silver builds on the previous day's solid recovery move from the $22.80 area, or the weekly low, and gains strong follow-through traction on Friday. This marks the third successive day of a positive move, also the fifth in the previous six, and lifts the white metal to a two-and-half-week peak, around the $23.75 region during the early part of the European session.
From a technical perspective, a move beyond the 50% Fibonacci retracement level of the August-September downfall could be seen as a fresh trigger for the XAG/USD bulls. Furthermore, oscillators on the daily chart have just started moving in the positive territory and support prospects for a further appreciating move. Hence, a subsequent strength towards reclaiming the $24.00 round figure, which coincides with the 61.8% Fibol level, looks like a distinct possibility.
Some follow-through buying will set the stage for an extension of the recent rally from an ascending trend line extending from the June swing low. The XAG/USD might then accelerate the momentum beyond the $24.30-$24.35 intermediate hurdle, towards the $25.00 psychological mark, or the August monthly swing high. The next relevant hurdle is pegged near the July peak, around the $25.25 region, which if cleared decisively should pave the way for additional gains.
On the flip side, any meaningful corrective slide now seems to find decent support near the $23.30 confluence, comprising the 200-period Simple Moving Average (SMA) on the 4-hour chart and the 38.2% Fibo. The next relevant support is pegged near the $23.00 round figure, below which the XAG/USD could slide back to retest the $22.30 support, or a nearly one-month low touched last Thursday. A convincing break below will shift the bias in favour of bearish traders.
The Norges Bank hiked by 25 bps to 4.25%. The Norwegian Krone was unable to benefit notably from Norges Bank’s decision. Economists at Commerzbank analyze NOK outlook.
Norges Bank hiked by 25 bps to 4.25% yesterday, but at the same time signalled another 25 bps rise for December. In its projections for key rates, Norges Bank assumes that the rate is going to be at 4.5% over the course of next year. Rate cuts therefore do not seem to be an issue for now. However, that means it also signals that the end of the rate hike cycle could soon be reached.
It also became clear that Norges Bank is taking a much more decisive approach in its fight against inflation than some other central banks. Krone will benefit from that in the end, which is why we expect Krone to slowly appreciate against EUR over the course of this year and in 2024.
The seasonally adjusted S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) unexpectedly advanced to 44.2 in September versus the 43.0 expected and, 43.0 - August’s final print.
Meanwhile, the Preliminary UK Services Business Activity Index reached a 32-month low of 47.2 in September, compared with a 49.5 final print for August and the 49.2 expected figure.
Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “The disappointing PMI survey results for September mean a recession is looking increasingly likely in the UK.”
“The steep fall in output signaled by the flash PMI data is consistent with GDP contracting at a quarterly rate of over 0.4%, with a broad-based downturn gathering momentum to hint at few hopes of any imminent improvement,” Williamson added.
GBP/USD is off the multi-month lows, still shedding 0.35% on the day to trade at 1.2250, as of writing.
FX markets are settling down after a big week of central bank policy announcements. Economists at ING discuss USD outlook.
The US 10-year Treasury yield has edged up to 4.50% – the highest since 2007. This grind higher in US yields – marking higher risk-free rates – creates headwinds for risk assets such as equities, credit and emerging markets. Indeed, even the AI-powered S&P 500 is having a bad month, though it is still up 12.8% year-to-date. This equity correction is supportive news for the Dollar.
Expect DXY to remain bid and there is a scenario where the Dollar stays strong into mid-October, when large US corporates based in California need to pay their taxes.
USD/CAD halts a two-day winning streak, trading sideways near 1.3470 during the European session on Friday. The pair experienced downward pressure as the US Dollar (USD) trimmed a part of intraday gains, coupled with the upbeat Crude oil prices.
The pullback in US Treasury yields might have put a ceiling on the gains of the US Dollar (USD). The yield on the 10-year US bond stands at 4.46% at the time of writing.
US Dollar Index (DXY), which measures the performance of the Greenback against the six other major currencies, is trading at around 105.50 by the press time.
West Texas Intermediate (WTI), the crude oil prices trade around $89.90 per barrel at the time of writing. This upward trend is attributed to the deliberate production cutbacks by OPEC+ producers.
These producers are actively reducing the supply of crude oil in the market as part of their efforts to support oil prices and balance the global supply-demand dynamics.
Market participants await economic data releases due on Friday, including the preliminary US S&P Global PMIs for September and Canada's Retail Sales for July. These figures have the potential to provide valuable insights into the economic conditions of both economies and can aid traders in identifying potential trading opportunities around the USD/CAD pair
Fed maintained interest rates within the 5.25-5.50% range during its Wednesday meeting. Fed Chairman Jerome Powell, during a subsequent press conference, reiterated the Fed's commitment to achieving a 2% inflation target. Powell also mentioned that the Fed is prepared to raise rates if deemed necessary. The Fed’s hawkish sentiment could help in underpinning the US Dollar (USD).
The Euro (EUR) maintains the selling bias unchanged against the US Dollar (USD), motivating EUR/USD to post new six-month lows near 1.0600 early on Friday.
The Greenback manages to set aside Thursday’s knee-jerk and resumes the uptrend around the 105.60 region when gauged by the USD Index (DXY). The relentless march north in the Dollar has been reinvigorated in response to the hawkish hold by the Federal Reserve (Fed) on Wednesday and appears further propped up by the firm rally in US yields in the belly and the long end of the curve.
Board members at the European Central Bank (ECB) showed some common ground after leaning to a potential pause in the next meeting despite seeing inflation still running well above the bank’s target.
In the European docket, flash Manufacturing and Services PMIs in Germany surprised to the upside at 39.8 and 49.8, respectively, in September, although they remain well into contraction territory. In the broader eurozone, the advanced Manufacturing PMI came in at 43.4, lower than expected, while the Services PMI stood at a higher-than-anticipated 48.4.
Friday is also PMI-day across the pond. In addition, FOMC Governor Lisa Cook will speak later in the American session.
EUR/USD recedes to new lows, although the 1.0600 region appears to be quite a tough nut to crack for Euro bears.
If the EUR/USD breaches its low of 1.0614, there is a chance it could revisit the March 15 low of 1.0516 before reaching the 2023 bottom of 1.0481 seen on January 6.
On the positive side, there is a minor resistance level at the September 12 high of 1.0767, followed by the more significant 200-day Simple Moving Average (SMA) at 1.0828. If the pair manages to break above this level, it could pave the way for a continued recovery towards the temporary 55-day SMA at 1.0905, with the possibility of reaching the August 30 top of 1.0945. Surpassing the latter could bring the psychological level of 1.1000 into focus, followed by the August 10 peak of 1.1064. Beyond that, the pair might retest the July 27 high at 1.1149 and potentially reach the 2023 top at 1.1275 from July 18.
As long as the EUR/USD remains below the 200-day SMA, there is a chance that the pair will continue to face downward pressure.
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
The EUR/GBP cross attracts some dip-buying near the 0.8660 region on Friday and sticks to its modest intraday gains through the early part of the European session. Spot prices currently trade around the 0.8680 area, up for the third straight day and fifth in the previous six, albeit lack follow-through and remain below a two-month peak touched on Thursday.
The British Pound's (GBP) relative underperformance could be attributed to the Bank of England's (BoE) surprise pause on Thursday, which, in turn, is seen acting as a tailwind for the EUR/GBP cross. In fact, the UK central bank ended a run of 14 straight interest rate hikes in the wake of the recent deceleration of inflation, signs that the UK labour market is cooling and reviving recession fears. The BoE's Monetary Policy Committee voted 5-4 in favour of maintaining the main policy rate at a 15-year high level of 5.25%.
Adding to this, softer-than-expected UK macro data released today undermines the Sterling and lends additional support to the EUR/GBP cross. The UK Office for National Statistics reported that the headline Retail Sales rebounded and increased by 0.4% in August following the previous month's sharp 1.1% fall. The rise, however, was slightly below the 0.5 % growth anticipated. That said, the European Central Bank's (ECB) dovish rate decision last Thursday keeps a lid on any meaningful appreciating move for the EUR/GBP cross.
The ECB opted to hike rates for the 10th straight time, by 25 bps, taking its main rate to an all-time high level of 4%. The downgrading of CPI and GDP growth forecasts for 2024 and 2025, however, suggested that the 14-month-long policy tightening cycle could have reached its peak already. Furthermore, a private survey showed a continuous decline in German business activity for the third straight month in September and fueled worries about a deep economic contraction, suggesting that further hikes may be off the table for now.
The EUR/GBP cross, meanwhile, reacts little to the rather unimpressive Eurozone PMI prints. Nevertheless, spot prices remain on track to register gains for the third successive week, also marking the fifth week of a positive end in the previous six. Bullish traders, meanwhile, are likely to wait for a sustained strength beyond the 0.8700 round figure, nearing a technically significant 200-day Simple Moving Average (SMA), before placing fresh bets.
The Eurozone manufacturing sector contraction deepened but the services sector saw a mild improvement in September, the official data from the HCOB's latest purchasing managers index survey showed Friday.
The Eurozone Manufacturing Purchasing Managers Index (PMI) edged lower to 43.4 in September, compared with the expectations of 44.0 and above the 43.5 seen in August. The index hit a two-month trough.
The bloc’s Services PMI rose to 48.4 in September from 47.9 in August, touching a two-month high, arriving above the 47.7 consensus.
The HCOB Eurozone PMI Composite improved to 47.1 in September vs. 46.5 anticipated and 46.7 reported in August. The index also recorded a two-month peak.
EUR/USD is consolidating losses near 1.0650 after mixed Eurozone PMIs. The spot is down 0.08% on the day, as of writing.
The Riksbank hiked policy rates by 25 bps. Economists at Commerzbank analyze SEK outlook after the Interest Rate Decision.
The Riksbank hiked its key rate by 25 bps to 4% as expected and at least referred to the possibility of the key rate rising further. The projections for the key rate were also raised, but the changes are only marginal and suggest a higher likelihood of the Riksbank having reached the end of its rate hike cycle.
From the market’s point of view, it is clearly not sufficient to say that the key rate could be raised further, as the current statement says. That means the Krona is likely to remain under pressure.
If inflation remains stubborn the FX market might punish the Krona due to Riksbank’s dovish approach.
UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang see USD/CNH navigating within the 7.2800-7.3400 range in the next few weeks.
24-hour view: Yesterday, we held the view that USD “is likely to rise, but it is unlikely to reach 7.3400.” Our view did materialise as it traded in a relatively quiet manner between 7.3045 and 7.3215. The price action appears to be consolidative, and USD is likely to trade sideways. Expected range for today; 7.3000/7.3250.
Next 1-3 weeks: We continue to hold the same view as yesterday (21 Sep, spot at 7.3150), wherein the recent downward pressure has faded, and USD is likely to trade in a range, probably between 7.2800 and 7.3400.
GBP weakened on unchanged BoE policy decision. Economists at ING analyze Sterling’s outlook.
There is still a chance of one final hike at the 2 November BoE meeting. This means that the market pricing of around a 50% chance of one last hike may largely stay with us until that meeting.
Pricing of the BoE curve has been a big driver of Sterling this year and we suspect EUR/GBP can now drift in a 0.86-0.87 range into that meeting. A leg higher to 0.88/89 probably requires some news of a serious UK slowdown and the market moving on to pricing the 2024 easing cycle.
GBP/USD is another matter, however. If EUR/USD trades down to 1.05, GBP/USD could be trading near 1.21.
Here is what you need to know on Friday, September 22:
The Japanese Yen struggles to find demand on Friday as markets assess the Bank of Japan's (BoJ) policy announcements. Later in the day, S&P Global will release preliminary September Manufacturing and Services PMI surveys for the Euro area, the UK and the US. Retail Sales Canada and comments from central bank officials will also be watched closely by market participants ahead of the weekend.
US S&P Global PMI Preview: A crucial report in a data-dependent era.
The BoJ left the monetary policy settings unchanged following the September meeting, holding the key rate steady at -0.1% and maintaining the 10-year Japanese government bond yield target at 0%. Speaking on the policy outlook, "we still cannot identify what variable would lead to the achievement of 2% inflation and the end of negative interest rate policy," BoJ Governor Kazuo Ueda said in the post-meeting press conference. He explained that a policy change could only be considered when the achievement of 2% inflation comes in sight. USD/JPY extended its rally after the BoJ event and was last seen trading at its highest level since November 2022 near 148.50.
Bank of Japan leaves interest rate, YCC policy unchanged.
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the Australian Dollar.
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
GBP/USD dropped below 1.2300 for the first time since March on Thursday after the Bank of England went against the market expectation for a 25 basis points rate hike and left the interest rate unchanged at 5.25%. Early Friday, the data from the UK revealed that Retail Sales declined 1.4% on a yearly basis in August. The pair stays under bearish pressure early Friday and trades slightly above 1.2250.
The data from Australia showed that the S&P Global Manufacturing PMI declined to 48.2 from 49.6. On a positive note, the Services PMI improved to 50.5 from 47.8, pointing to an expansion in the service sector's business activity. AUD/USD edged slightly higher after these figures and stabilized above 0.6400.
EUR/USD closed virtually unchanged on Thursday and extended its sideways grind near 1.0650 early Friday. The Manufacturing PMI in Germany improved to 39.8 in August and the Services PMI rose to 49.8. Although these readings came in above market expectations, the Euro failed to capitalize on them.
Gold price turned south on Thursday and dropped below $1,920. Early Friday, XAU/USD gathered recovery momentum and rose toward $1,930, supported by the pullback seen in the 10-year US Treasury bond yield.
USD/JPY retraces the losses registered on Thursday on the back of a policy rate decision by the Bank of Japan (BoJ). As widely expected, BoJ maintained its current interest rates at -0.1%. The spot price is trading higher around 148.30 during the early trading hours of the European session on Friday.
BOJ Governor Kazuo Ueda conducted the press conference of the post-September policy meeting on Friday. The BoJ Governor has mentioned that the BOJ could contemplate ending yield curve control and adjusting its negative interest rate policy when they believe that achieving 2% inflation is on the horizon.
The policymaker has emphasized that there is "no change to the way of the policy decision-making process," indicating that the BOJ continues to carefully analyze new data at each monetary policy meeting.
Ueda further stated that they have not yet seen inflation reaching a stable 2% level. He also mentioned that the next monetary policy decision in October will be driven by data, including the government's extension of gasoline subsidies.
The BoJ is prepared to implement further easing measures if deemed necessary. Ueda acknowledged that there is a high degree of uncertainty regarding economic conditions, price trends, as well as currency and financial markets.
Japan’s National Consumer Price Index (YoY) report for August printed a reading of 3.2% compared to the previous rate of 3.3%. While National CPI ex-Fresh Food (YoY) remained consistent at 3.1% against the expected 3.0%.
US Dollar Index (DXY) trades higher around 105.40, and these gains can be attributed in part to the positive performance of US Treasury yields. The yield on the 10-year US bond has improved to 4.49% at the time of writing, the highest level since 2007.
Market participants await monitor economic data releases, including the preliminary US S&P Global PMIs for September. These figures may provide valuable insights into the economic conditions in the United States (US) and can assist traders in identifying potential trading opportunities involving the US Dollar (USD).
Recent economic data from the US, released on Thursday, presented a mixed picture. Initially, it strengthened the Greenback, signaling a resilient labor market. However, it later experienced a correction.
US Initial Jobless Claims for the week ending on September 15 reported a figure of 201,000, representing a decrease from the previous reading of 221,000 and reaching the lowest level since January. This data outperformed expectations, as it was anticipated to be higher at 225,000.
The Philadelphia Fed Manufacturing Survey declined to a reading of 13.5 in September, which fell below expectations. Analysts had expected a decrease of only 0.7 from the previous positive reading of 12.
Regarding Existing Home Sales (MoM), August witnessed a decrease to 4.04 million from the previous figure of 4.07 million. Expectations were for an increase to 4.10 million.
As widely anticipated in the market, the Federal Reserve (Fed) chose to maintain interest rates within the 5.25-5.50% range during its Wednesday meeting. Fed Chairman Jerome Powell, during a subsequent press conference, reiterated the Fed's commitment to achieving a 2% inflation target. Powell also mentioned that the Fed is prepared to raise rates if deemed necessary.
According to the preliminary business activity report from the HCOB survey, published on Friday, Germany’s manufacturing sector is seeing a gradual recovery in September while the services sector downturn eased.
The HCOB Manufacturing PMI in the Eurozone’s biggest economy came in at 39.8 this month, as against the 39.5 expectations and 39.1 print booked in August. The index hit its highest level in three months.
Meanwhile, Services PMI rose from 47.3 in August to 49.8 in September. The market consensus was for a 47.2 reading. The measure reached a fresh two-month high.
The HCOB Preliminary German Composite Output Index arrived at 46.2 in September vs. 44.8 estimates and August’s 44.6. The gauge recorded a two-month top.
EUR/USD is keeping its downbeat momentum intact below 1.0650 on the upbeat German data. The pair is trading 0.13% lower at 1.0645, at the time of writing.
The Pound Sterling (GBP) finds offers while attempting to extend recovery as investors see no change in the current policy divergence between the Federal Reserve and the Bank of England (BoE). The GBP/USD pair looks set to test its six-month low as BoE policymakers have shifted their focus to safeguarding the economy from recession risks.
The UK economy has been through a vulnerable phase as the BoE was consistently raising interest rates so that inflationary pressure above the desired rate could recede. While the BoE still cannot announce a victory over inflation as it is more than three times the desired rate, the UK’s economic outlook has worsened as firms are operating on lower capacity and labor growth has slowed.
Pound Sterling finds sellers after a short-lived pullback move close to 1.2300. The Cable is only marginally above the six-month low around 1.2200. The asset has stabilized below all short-to-long-term daily Exponential Moving Averages (EMAs). Momentum oscillators support further weakness in the Cable.
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
In light of advanced prints from CME Group for natural gas futures markets, open interest rose for the second session in a row on Thursday, now by around 12.2K contracts. On the flip side, volume added to the previous daily drop and shrank by around 64.7K contracts.
Natural gas prices dropped for the second consecutive session on Thursday. The daily decline was on the back of increasing open interest, which suggests that further retracement appears in the pipeline with the next support emerging at the monthly low around the $2.50 level per MMBtu (September 7).
Japan’s Chief Cabinet Secretary Hirokazu Matsuno said on Friday, he is “watching movements of forex markets with high sense of urgency.”
Matsuno said that he “expects the BoJ to cooperate closely with the government.”
USD/JPY now seems to face a 146.50-148.50 range in the short-term horizon, comment UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.
24-hour view: Yesterday, we held the view that USD “could edge higher, but it is unlikely to threaten the major resistance at 149.00.” USD then eked out a fresh high of 148.45 before plummeting to end the day lower by 0.51% (147.58). While the sharp drop appears to be overdone, there is room for USD to test 147.15 before stabilisation is likely. The major support at 146.50 is unlikely to come into view. Resistance is at 147.90, followed by 148.20.
Next 1-3 weeks: On Monday (18 Sep, spot at 147.80), we highlighted that “upward momentum has increased slightly, and USD could edge higher to 148.40, but the likelihood of a sustained rise above this level is not high.” Yesterday (21 Sep, spot at 148.30), we highlighted that USD “Upward momentum has increased further, and USD has room to rise to 149.00.” USD then rose and eked out a fresh high of 148.45 before plummeting below our ‘strong support’ level of 147.45 (low has been 147.31). The breach of our ‘strong support’ level indicates that upward pressure has faded. For the time being, USD is likely to trade in a range, probably between 146.50 and 148.50.
The Swiss National Bank surprised the market by refraining from raising interest rates further. As a result, the Franc depreciated. Economists at Commerzbank analyze CHF outlook.
Contrary to what the majority of economists had expected, SNB did not hike its key rate but kept it on hold at 1.75%.
The SNB still sees considerable upside risks for inflation due to second-round effects which can in parts be observed already. Small changes to the framework conditions might mean that the SNB will have to raise its projections again (1.9% for 2025) and that inflation might rise back above price stability levels. For that reason, the SNB has kept the door open for further rate hikes and also confirmed its willingness to intervene in the FX market.
As this is a hawkish pause the deprecation pressure on the Franc is likely to be limited. In particular as more significant depreciation might cause the SNB to intervene again.
As EUR tends to be under depreciation pressure at present, now that the ECB has signalled the end of its rate hike cycle, we see little appreciation potential for EUR/CHF.
Bank of Japan (BOJ) Governor Kazuo Ueda is addressing the post-September policy meeting press conference on Friday, noting that they “could consider ending yield curve control and modify negative interest rate policy when we judge the achievement of 2% inflation is in sight.”
Today we discussed that inflation's rate of deceleration has been slower than in the July outlook report.
Seeing US Fed stance to keep rates high.
We are seeing continued contraction in Japan's real wages with 'concern'.
Not in situation now to decide on order of change in policy tools.
My comments reported by Yomiuri were not made because my sense of distance towards ending NIRP had changed.
Short-term interest rates will be kept until achievement of price target.
Need to bear in mind possibility of fed rate hikes again.
There was discussion that corporate profits are strong, which is good for wage talks next year.
Short-term interest rates will be kept until achievement of price target.
Need to bear in mind possibility of fed rate hikes again.
There was discussion that corporate profits are strong, which is good for wage talks next year.
No comment on short-term interest rate, FX moves.
Important for currencies to move stably reflecting fundamentals.
Will coordinate closely with govt to monitor FX market, impact on economy.
Japan's consumption is on gradual recovery overall.
We are gradually moving to world where companies can change prices along with other companies.
Sustainability of wage hikes is the most important element to judge sustainability of inflation.
USD/JPY was last seen trading at 148.36, up 0.53% on the day.
EUR/USD remains under pressure as Dollar strength dominates. Economists at ING analyze the pair’s outlook.
The Euro faces an event risk from today's releases of the flash PMIs for September. It really has been the PMI releases that have hit the Euro since the summer.
For EUR/USD, an imminent turnaround looks unlikely and support at 1.0600/0610 looks the last barrier before what seems the more likely dip to the 1.05 area.
See: EUR/USD is heading for a look at parity – SocGen
The Indonesian Rupiah has already fallen by more than 2.6% against the Dollar so far this quarter on the back of high crude Oil prices and a rising Dollar Index. Economists at Société Générale discuss IDR outlook.
The IDR is facing depreciation pressure due to rising crude oil prices and a strong dollar. In the event that the Fed hikes rates again (BI expects the Fed to hike in November), further narrowing of the rate differential would put additional pressure on the currency. In addition, a worsening current account balance (CAB) is proving challenging.
Despite well-behaved inflation and growth that’s failing to regain traction, BI is in no position to embark on a policy rate easing cycle. With the Fed clearly indicating higher rates for longer and BI not ruling out an additional hike, the pressure on the currency and bond yields should only intensify in the short to medium term. Hence, we do not foresee a rate cut by BI before 1Q24, with a non-negligible probability of it being shifted further out to 2Q24.
Natural Gas price (XNG/USD) recovers its losses during the early European trading hours on Friday. XNG/USD currently trades near $2.89 per MMBtu, gaining 1.19% for the day. The Energy Information Administration (EIA) revealed on Thursday that the weekly Natural Gas Storage Change for the week ending September 15 increased by 64B from the previous week of 67B.
From a technical perspective, Natural Gas price holds above the 50- and 100-day Exponential Moving Averages (EMAs) on the daily chart. It’s worth noting that the 50-hour EMA is on the verge of crossing above the 100-hour EMA. If a decisive crossover occurs on the daily chart, it would validate a Bull Cross, highlighting the path of least resistance for XNG/USD is to the upside. Meanwhile, the Relative Strength Index (RSI) stands in bullish territory above 50, supporting the buyers for now.
The key resistance level for natural gas is located at $3.00, representing the confluence of the upper boundary of the Bollinger Band, a psychological round mark, and a high of September 20. A break above the latter will see the next barrier at $3.08 (a high of March 3). Further north, the additional upside filter is seen around a high of January 24 at $3.30
On the flip side, the critical support level is located at $2.78. The mentioned level portrays the convergence of 50- and 100-day EMAs. The next contention level will emerge at $2.70 (the lower limit of the Bollinger Band). Any follow-through selling below the latter will see a drop to $2.50 (a low of August 2), and finally at $2.26 (a low of June 12).
Bank of Japan (BOJ) Governor Kazuo Ueda is addressing the post-September policy meeting press conference on Friday, noting that there is “no change to the way of the policy decision-making process that we scrutinize new data at every monetary policy meeting.”
Companies' wage, price-setting behavior has been more positive recently.
We have yet to foresee inflation achieving 2% in stable manner.
No comment on asset price moves in financial market.
Next meeting in October will scrutinize various data including govt's gasoline subsidy extension.
Won't hesitate to take additional easing measures if necessary.
I said in Yomiuri interview that we need to patiently continue easy policy.
Uncertainty quite high over economic, price outlook as well as currencies and financial markets.
Macroeconomic impact of slight rise in mortgage rates is limited.
Pace of fall in inflation rate seems somewhat slower than forecast in July.
In reaction to the above comments, USD/JPY is refreshing intraday highs near 148.35, up 0.51% so far.
NZD/USD continues its gradual recovery. Economists at ANZ Bank analyze Kiwi’s outlook.
Moves have been unremarkable and it’s well within familiar ranges, and as we look ahead it’s difficult to see a catalyst for a major range-break.
On the one hand, the Fed’s pursuit of soft-landing bodes well for the USD, but on the other hand, the NZ economy is proving to be a bit more robust than first thought, and domestic data this month fully underscores the need for more monetary policy tightening.
Boil it all together and it has more of a feel of limiting downside rather than something that might overcome USD exceptionalism, especially with markets reluctant to price in a November OCR hike. But at least it’s not bad news for the Kiwi!
The Bank of England (BoE) held its policy rate steady at 5.25%. The decision represents a loss of interest rate support for the Pound, economists at Wells Fargo report.
We now forecast that the current policy rate of 5.25% will be the peak for this cycle. We do expect rates to remain at that level for some time and, following a mild recession beginning late this year and as CPI inflation moves closer to the 2% target, forecast an initial modest 25 bps rate reduction only by the time of the May 2024 policy meeting. We expect the pace of rate cuts to gather momentum through the rest of next year, and see the Bank of England policy rate to end next year at 3.25%.
The decision to pause and the probable end to policy tightening represents a loss of interest rate support. As a result and even though the GBP/USD pair has already moved below our medium-term target of 1.2300, we think the risks remain tilted toward further Sterling weakness through early 2024. In that context, a move to 1.2000 or below cannot be ruled out.
Open interest in crude oil futures markets rose by nearly 23K contracts after six consecutive daily pullbacks on Thursday, according to preliminary readings from CME Group. On the other hand, volume went down for the second consecutive session, now by around 240.2K contracts.
Thursday’s uptick in prices of WTI was on the back of increasing open interest and allows for the continuation of the rebound to retarget the so far September peak at $92.63 per barrel (September 19).\
In the view of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, AUD/USD is now predicted to trade between 0.6355 and 0.6480 in the next few weeks.
24-hour view: We indicated yesterday that “The sharp drop from the NY high could extend, but it is unlikely to break the strong support at 0.6410.” We added, “The next support is at 0.6385.” AUD dropped more than expected and came close to breaking ‘the next support at 0.6385’ as it dropped to a low of 0.6386. Despite rebounding from the low, the weakness in AUD has not stabilised. Today, AUD could retest the 0.6385 level before a more sizeable and sustained rebound is likely. The major support at 0.6355 is highly unlikely to come under threat. Resistance is at 0.6430, followed by 0.6450.
Next 1-3 weeks: About a week ago (12 Sep, spot at 0.6425), we held the view that AUD could rebound further, but any advance is expected to face solid resistance at 0.6485. After AUD rose to 0.6511 and pulled back sharply, we highlighted yesterday (21 Sep, spot at 0.6440) that “upward momentum is beginning to slow, and if AUD breaks below 0.6410, it would mean that AUD is not advancing further.” AUD then broke below 0.6410 before rebounding from a low of 0.6386. AUD appears to have entered a consolidation phase, and it is likely to trade between 0.6355 and 0.6480 for the time being.
Asian markets exhibit a mixed sentiment with a negative bias as the market is cautious of the US Federal Reserve’s (Fed) hawkish tone on the interest rate trajectory.
The Fed's warning that interest rates will remain elevated for an extended period has contributed to ongoing uncertainty and volatility in regional markets.
At the time of writing, China's SSE Composite Index is up by 0.68% to 3,105, Shenzhen Component Index has risen to 10,083, up by 1.02%, Hong Kong's Hang Seng Index has increased to 17,846, Tokyo's Nikkei 225 has declined to 32,433, down by 0.42%, South Korea's Kospi is down by 0.30% and Taiwan's Weighted Index has improved by 0.21%.
Moreover, downbeat commodities’ prices undermined the mining sector, which contributed to the weakening of Australia’s ASX 200, down by 0.14%.
Japan's Nikkei 225 index retraces the intraday losses following the Bank of Japan's (BoJ) decision to maintain its ultra-dovish monetary policy stance. This decision disappointed investors who were anticipating any potential hawkish signals from the central bank.
India's Nifty 50 index has advanced to 19,761, marking a gain of 0.10%. Nevertheless, there is a sense of caution among investors, which could potentially exert pressure on Indian markets.
This caution stems from the deteriorating diplomatic dispute between India and Canada, which has arisen due to allegations surrounding the killing of a Sikh secessionist leader.
The USD Index (DXY), which tracks the greenback vs. a bundle of its main competitors, resumes the uptrend and revisits the mid-105.00s at the end of the week.
The index resumes the uptrend and sets aside Thursday’s small decline on the back of the resumption of the risk-off sentiment and the continuation of the march north in US yields.
On the latter, it is worth mentioning that yields in the belly and the long end of the curve navigate levels last seen in October 2007 and April 2011, respectively, all against the backdrop of firm market chatter regarding another rate hike by the Fed before the year ends and the start of interest rate cuts not before Q45 2024.
In the US docket, advanced Manufacturing and Services PMIs are due for the month of September ahead of the speech by FOMC Governor Lisa Cook (permanent voter, centrist).
The index picks up renewed buying interest and advances to the mid-105.00s, retargeting at the same time Thursday’s fresh peaks near 105.70.
In the meantime, support for the dollar keeps coming from the good health of the US economy, which at the same time appears underpinned by the renewed tighter-for-longer stance narrative from the Federal Reserve.
Key events in the US this week: Flash Manufacturing/Services PMIs (Friday).
Eminent issues on the back boiler: Persevering debate over a soft or hard landing for the US economy. Incipient speculation of rate cuts in early 2024. Geopolitical effervescence vs. Russia and China.
Now, the index is up 0.12% at 105.50 and a breakout of 105.73 (monthly high September 21) would open the door to 105.88 (2023 high March 8) and finally 106.00 (round level). On the other hand, initial support emerges at 104.42 (weekly low September 11) ahead of 103.04 (200-day SMA) and then 102.93 (weekly low August 30).
The UK Retail Sales jumped 0.4% over the month in August vs. 0.5% expected and -1.1% prior, the latest data published by the Office for National Statistics (ONS) showed on Friday. The Core Retail Sales, stripping the auto motor fuel sales, rose 0.6% MoM vs. 0.6% expected and -1.4% seen in July.
The annual Retail Sales in the United Kingdom declined 1.4% in August versus -1.% expected and July’s 3.1% drop while the Core Retail Sales fell by 1.4% in the reported month versus -1.3% expectations and -3.3% previous.
Food stores sales volumes rose by 1.2% in August 2023, following a fall of 2.6% in July 2023 when supermarkets reported that the wet weather reduced clothing sales, and supermarket food sales also fell back.
Non-food stores sales volumes grew by 0.6% in August 2023, following a fall of 1.2% in July 2023 when poor weather reduced footfall.
Non-store retailing (predominantly online retailers) sales volumes fell by 1.3% in August 2023, following a rise of 1.9% in July 2023 when wet weather and a range of promotions boosted sales.
Automotive fuel sales volumes fell by 1.2% in August 2023, with retailers suggesting the fall was linked to a sharp increase in petrol and diesel prices.
GBP/USD is testing daily lows near 1.2270 on the downbeat UK Retail Sales data. The spot was last seen trading at 1.2272, down 0.16% on the day.
The EUR/USD pair remains under selling pressure and trades in negative territory for the fourth straight day during the early European session on Friday. The major pair currently trades near 1.0653, losing 0.06% on the day.
European Central Bank (ECB) Chief Economist Phillip Lane said on early Friday that inflation above 2% is costly for the economy and that central banks attempt to control inflation over the medium term. On Thursday, German Bundesbank President Joachim Nagel stated that the inflation rate in the eurozone is not approaching 2% at the desired rate and core inflation remains stubbornly high and is expected to fall only gradually.
ECB is expected to end its hiking cycle and will stay on hold until at least July next year, according to economists in a Reuters poll. It's worth recalling that the ECB raised its key interest rate to a record high of 4% on September 14. This, in turn, might drag the Euro lower against the Greenback.
Across the pond, the Fed decided to hold interest rates unchanged at the 5.25-5.50% range on Wednesday’s meeting, as widely anticipated in the market. According to the Fed's most recent quarterly predictions, the benchmark overnight interest rate may be hiked one more time this year to a peak range of 5.50% to 5.75%, and rates could be significantly tighter through 2024 than previously anticipated. This, in turn, boosts the Greenback and acts as a headwind for the EUR/USD pair.
About the data on Thursday, the US weekly Initial Jobless Claims dropped to 201,000, the lowest level since January. Meanwhile, the Philly Fed declined to -13.5 in September from 12.0 in the previous reading, below the market expectation of -0.7. Existing Home Sales fell to 4.04M MoM in August from the previous reading of 4.07M.
Looking ahead, the Purchasing Manager Index (PMI) will be released from both the Eurozone and the US docket for this Friday. The preliminary Eurozone Composite PMI is expected to drop from 46.7 to 46.5 in September, while the preliminary PMI for the US is expected to rise slightly. Traders will take cues from these figures and find trading opportunities around the EUR/USD pair.
GBP/USD now looks at a potential drop to 1.2200, according to UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.
24-hour view: While we expected GBP to weaken yesterday, we were of the view that “1.2265 is likely out of reach.” GBP fell more than expected to 1.2231 before snapping back up and then closed at 1.2295 (-0.39%). The sharp rebound in oversold conditions suggests that GBP is unlikely to weaken much further. Today, GBP is more likely to trade in a range, probably between 1.2240 and 1.2340.
Next 1-3 weeks: Yesterday (21 Sep, spot at 1.2335), we indicated that “A break of 1.2305 will not be surprising.” We added, “As conditions are approaching oversold, it remains to be seen if 1.2265 will come into view.” However, GBP broke below 1.2265 and reached 1.2231 before rebounding. While the negative outlook that started early this month is still intact, the extended decline (both time- and price-wise) feels overstretched. In other words, the weakness may not have much room to go before stabilisation is likely. The next level to watch is 1.2200. On the upside, if GBP breaks above 1.2380 (‘strong resistance’ level was at 1.2420 yesterday), it would mean the weakness in GBP has stabilised.
CME Group’s flash data for gold futures markets noted traders reduced their open interest positions by more than 4K contracts on Thursday. Volume, instead, increased for the second session in a row, this time by around 6.3K contracts.
Gold prices retreated for the third session in a row on Thursday. The downtick was amidst shrinking open interest and is indicative that a deeper pullback seem not favoured for the time being. That said, a. near-term rebound could be in the offing with the immediate target at the weekly high at $1947 per troy ounce (September 20).
EUR/USD is seen sticking to its range bound theme for the time being, suggest UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.
24-hour view: We highlighted yesterday that EUR “could dip below the major support at 1.0630 before stabilisation is likely.” We also highlighted that “The next support at 1.0590 is unlikely to come under threat.” Our view turned out to be correct. EUR dropped to a low of 1.0615 and then rebounded to end the day little changed at 1.0568 (-0.01%). The current price movements are likely part of a consolidation. Today, EUR is likely to trade sideways in a range of 1.0620/1.0685.
Next 1-3 weeks: There is not much to add to our update from yesterday (21 Sep, spot at 1.0655). As indicated, EUR is likely to trade in a range of 1.0590/1.0730 for now. Looking ahead, if EUR breaks clearly below 1.0590, it will likely lead to a sustained decline towards the major support at 1.0515.
The GBP/USD pair struggles to capitalize on the previous day's modest recovery from the 1.2235 area, or its lowest level since late March and meets with a fresh supply during the Asian session on Friday. Spot prices currently trade near the 1.2280-1.2275 region, down for the third successive day, and seem vulnerable to decline further.
The British Pound (GBP) continues with its relative underperformance in the wake of the Bank of England's (BoE) surprise decision to leave interest rates unchanged on Thursday. In contrast, the Federal Reserve's (Fed) hawkish outlook, signalling the possibility of at least one more rate hike by the end of this year, assists the US Dollar (USD) to hold steady just below a six-month peak. This, along with a generally softer tone around the equity markets, is seen benefitting the safe-haven Greenback and exerting downward pressure on the GBP/USD pair.
From a technical perspective, the recent steep downfall from the 1.1275 area, or a 17-month high touched in July, has been along a downward-sloping channel. This points to a well-established short-term downtrend and favours bearish traders. Furthermore, oscillators on the daily chart are holding deep in the negative territory and are still far from being in the oversold zone, validating the bearish outlook for the GBP/USD pair. Hence, a slide towards retesting the channel support, around the 1.2235-1.2230 region, looks like a distinct possibility.
Some follow-through selling will confirm a fresh bearish breakdown and drag spot prices further below the 1.2200 round figure, towards the next relevant support near the 1.2170-1.2165 zone. The GBP/USD pair could extend the downfall further towards the 1.2140-1.2135 intermediate support before eventually dropping to the 1.2100 mark.
On the flip side, any recovery above the 1.2300 round figure might now confront a stiff barrier near the overnight swing high, around the 1.2350 region. This is followed by resistance near the 1.2375 zone, which if cleared should allow the GBP/USD pair to reclaim the 1.2400 mark. Any subsequent move up, however, might still be seen as a selling opportunity and remain capped near the 200-day Simple Moving Average (SMA) support breakpoint, now turnd hurdle, near the 1.2435-1.2440 region.
The US Dollar (USD) loses its recovery momentum against the Mexican Peso and edges lower to 17.20 during the Asian trading hours on Friday. The hawkish remarks from the Federal Reserve (Fed) lift the Greenback broadly. Investors shift the attention to the release of US S&P Global/CIPS PMI data for September due later in the American session on Friday.
The Fed decided to hold interest rates unchanged at the 5.25-5.50% range on Wednesday’s meeting, as widely anticipated in the market. Additionally, Fed Chairman Jerome Powell reaffirmed the US central bank’s commitment to achieving a 2% inflation target in a press conference while mentioning that the Fed is ready to raise rates if necessary. This, in turn, lifts the Greenback and acts as a tailwind for the USD/MXN pair.
According to the Fed's most recent quarterly predictions, the benchmark overnight interest rate may be hiked one more time this year to a peak range of 5.50% to 5.75%, and rates could be significantly tighter through 2024 than previously anticipated.
On Thursday, the US weekly Initial Jobless Claims dropped to 201,000, the lowest level since January. Meanwhile, the Philly Fed dropped to -13.5 in September from 12.0 in the previous reading, worse than expected at -0.7. Existing Home Sales fell to 4.04M MoM in August from the previous reading of 4.07M.
On the Mexican Peso front, the Instituto Nacional de Estadistica Geografia e Informatica (INEGI) reported on Thursday that Mexican Retail Sales came at 0.2% MoM in July from 2.3% in the previous reading, as market expected. On an annual basis, the figure rose by 5.1% versus 5.9% prior, above the market consensus of 4.9%.
Looking ahead, market players will take cues from the Mexican Economic Activity data for July ahead of the US PMI data. These figures could give a clear direction to the USD/MXN pair.
The USD/INR pair comes under some renewed selling pressure on Friday and touches a nearly three-week low, around the 82.80-82.75 region during the Asian session. Spot prices, however, manage to trim a part of the intraday losses and currently trade just below the 83.00 round figure, still down over 0.20% for the day.
Technical indicators on the daily chart, meanwhile, have just started drifting in the negative territory and support prospects for some meaningful depreciating move. That said, any subsequent decline below the daily trough is likely to find decent support near the 100-day Simple Moving Average (SMA), currently pegged near the 82.45 region. This is closely followed by the 200-day SMA, around the 82.35 zone, which should now act as a key pivotal point for the USD/INR pair.
The latter near the August 24 low, which if broken decisive will be seen as a fresh trigger for bearish traders and prompt aggressive technical selling. Spot prices might then turn vulnerable to accelerate the slide towards the 82.00 mark. The downward trajectory could get extended and eventually drag the USD/INR pair to the July swing low, around the 81.70-81.65 region.
On the flip side, movement above the 83.00-83.05 immediate hurdle now seems to confront resistance near the 82.30 zone ahead of the all-time peak, around the 83.40-83.45 region touched on August 15. A sustained strength beyond will be seen as a fresh trigger for bullish traders and allow the USD/INR pair to conquer the 84.00 round-figure mark.
Western Texas Intermediate (WTI), the US crude oil benchmark extends gains on the second day, trading higher around $90.00 per barrel during the Asian session on Friday.
Crude oil prices are receiving upward support due to a constrained production outlook from Saudi Arabia and Russia. Market analysts are anticipating that prices of black gold will gradually rise into the $100 per barrel range in the upcoming months.
The combined supply cuts of 1.3 million barrels per day from Saudi Arabia and Russia have been extended until the end of the year 2023. Markets believe that this extension will worsen an expected 2 million barrels per day shortfall in global oil supplies.
The US Dollar Index (DXY) is currently trading at around 105.40, and this upward movement can be attributed in part to the positive performance of US Treasury yields. The yield on the 10-year US bond has improved to 4.50% at the time of this writing.
Market participants will likely monitor economic data releases, including the preliminary US S&P Global PMIs for September. These figures offer valuable insights into the economic conditions in the United States (US) and can help traders identify potential trading opportunities involving the US Dollar (USD).
Recent economic data from the US, released on Thursday, presented a mixed picture. Initially, it strengthened the Greenback, signaling a resilient labor market. However, it later experienced a correction.
US Initial Jobless Claims for the week ending on September 15 reported a figure of 201,000, marking a decrease from the previous reading of 221,000 and reaching the lowest level since January. This data was anticipated to be higher at 225,000.
The Philadelphia Fed Manufacturing Survey declined to a reading of 13.5 in September, which was below expectations, as the market had anticipated a decrease of 0.7 from the previous positive reading of 12.
Regarding Existing Home Sales (MoM), August saw a decrease to 4.04 million from the previous figure of 4.07 million. Expectations were for an increase to 4.10 million.
As widely anticipated in the market, the Federal Reserve (Fed) chose to maintain interest rates within the 5.25-5.50% range during its Wednesday meeting. Fed Chairman Jerome Powell, in a subsequent press conference, reiterated the Fed's commitment to achieving a 2% inflation target. The policymaker also mentioned that the Fed is prepared to raise rates if necessary.
The USD/CAD pair snaps its two-day winning streak and edges lower to 1.3460 during the Asian session on Friday. A rebound in oil prices underpins the commodity-linked Loonie as the country is the leading oil exporter to the United States. Market players await the monthly Canadian Retail Sales for July and the US S&P Global/CIPS PMI data due later on Friday’s North American session.
According to the one-hour chart, USD/CAD holds below the 50- and 100-hour Exponential Moving Averages (EMAs), which supports the sellers for the time being. Meanwhile, the Relative Strength Index (RSI) stands below 50, activating the bearish momentum for the USD/CAD pair.
The immediate resistance level for the pair is seen near the 100-hour EMA at 1.3480. The additional upside filter to watch is near the confluence of the the upper boundary of the Bollinger Band and a high of September 21 at the 1.3515-1.3525 region. Any follow-through buying above the latter will pave the way to a high of September 13 at 1.3586, followed by a psychological round figure at 1.3600.
On the flip side, a break below the lower limit of Bollinger Band of 1.3455 will see a drop to a key contention at 1.3400. The mentioned level represents a psychological figure and a low of August 11. Further south, the next downside stop will emerge at 1.3380 (a low of September 19).
Gold price builds on the previous day's bounce from the $1,914-$1,913 area, or the weekly low and gains some positive traction during the Asian session on Friday. The XAU/USD currently trades around the $1,925 region, up just over 0.20% for the day, and for now, seems to have snapped a three-day losing streak.
The intraday uptick in the Gold price, meanwhile, lacks any obvious fundamental catalyst and runs the risk of fizzling out rather quickly in the wake of the Federal Reserve's (Fed) readiness to hike interest rates until inflation returns to its 2% target. In fact, the Fed warned that warned that still-sticky inflation in the United States (US) was likely to attract at least one more 25 basis points (bps) lift-off by the year-end.
Moreover, the so-called 'dot-plot' indicated that policymakers see the benchmark rate at 5.1% in 2024, suggesting just two rate cuts next year as compared to four projected previously. Adding to this, the US Labor Department reported on Thursday that the number of Americans filing new claims for unemployment-related benefits dropped to an eight-month low last week, pointing to persistent labour market tightness.
This should allow the Fed to keep rates higher for longer and lead to an extended selloff in the US fixed-income market, pushing the yield on the rate-sensitive two-year government bond to its highest level since July 2006. Moreover, the benchmark 10-year Treasury yield rose to a 16-year peak, which continues to underpin the Greenback and keep a lid on any meaningful appreciating move for the non-yielding Gold price.
Hence, it will be prudent to wait for strong follow-through buying before placing fresh bullish bets around the XAU/USD. Market participants now look forward to the release of the flash PMI prints, which will be looked upon for fresh insight into the health of the global economy. This, in turn, will influence the broader market risk sentiment, which should drive demand for traditional safe-haven assets and the Gold price.
The GBP/JPY cross surges to 181.80 after accelerating the downside momentum to a seven-week low of 180.70 during the Asian session on Friday. The rebound of the cross is bolstered by the Bank of Japan (BoJ) interest rate decision after central bank policymakers decided to maintain the current monetary policy unchanged.
After the highly-anticipated September monetary policy meeting, the Bank of Japan (BoJ) board members decided to keep its short-term interest rate target of -0.1% and its 10-year bond yield target of around 0%, as widely expected by the market. However, a divergence in monetary policy between the BoJ and the Bank of England (BoE) weighs on the Japanese Yen (JPY) and acts as a tailwind for the GBP/JPY cross.
Earlier on Friday, Japan’s National Consumer Price Index (CPI) for August came in at 3.2% YoY from 3.3% in July. Additionally, the National CPI ex Fresh Food improved from 3.0% in July to 3.1% in August, whereas the National CPI ex Food, Energy came in at 4.3% compared to 4.3% in previous readings.
The Bank of England (BoE) stunned market participants on Thursday by maintaining the benchmark rate at 5.25% rather than raising it by 25 basis points (bps) to 5.5% as anticipated. British central bank decided to pause its long run of interest rate hikes as the economy slowed and inflation decreased, but BoE Governor Andrew Bailey underlined that the central bank did not believe its work was over. He added that he would not forecast the BoE's next action, but that it would be "very, very premature" to cut interest rates.
Moving on, the UK Retail Sales and Purchasing Manager Index (PMI) data will be released on Friday. The monthly Retail Sales for August are expected to improve from -1.2% to 0.5%, while Composite PMI is expected to rise from 48.6 to 48.7. Traders will take cues from these figures and find trading opportunities around the GBP/JPY cross.
EUR/JPY attempts to recover from the previous day’s losses after the interest rate decision by the Bank of Japan (BoJ). As widely expected, BoJ maintained its current interest rates at -0.1%. The spot price is trading higher around 157.60 during the Asian session on Friday.
As the Japanese Yen (JPY) faced renewed selling pressure earlier in the day, Japan's Finance Minister Shunichi Suzuki responded with typical verbal intervention. Suzuki stated that he has no comment on recent foreign exchange (FX) levels and movements.
Suzuki also noted that the FX intervention conducted last year had its intended impact, and the central bank is closely monitoring FX movements with a high degree of urgency.
Furthermore, the policymaker emphasized that they are not ruling out any options for responding to excessive FX volatility and are in close communication with foreign currency authorities overseas.
Japan’s National Consumer Price Index (YoY) for August grew to 3.2% slightly lower than the previous rate of 3.3%. While National CPI ex-Fresh Food (YoY) remained consistent at 3.1% against the expected 3.0%.
On the European Central Bank (ECB) front, Chief Economist Phillip Lane stated early on Friday that "inflation over 2% is costly for the economy." Lane emphasized that central banks aim to achieve inflation targets in the medium term and refrained from speculating on future ECB policy decisions. The policymaker also pointed out that the most effective way to tighten monetary policy is through adjustments to interest rates.
Investors will also likely observe preliminary HCOB PMIs from the Eurozone for September, seeking more valuable insights into the bloc’s economic activities.
The USD/JPY pair regains positive traction during the Asian session on Friday and the buying interest picks up pace after the Bank of Japan (BoJ) announced its policy decision. Spot prices climb back above the 148.00 mark in the last hour and remain well within the striking distance of the YTD peak touched on Thursday.
The Japanese central bank, as was widely anticipated, decided to leave its monetary policy settings unchanged and fell short of offering any forward guidance. This marks a big divergence in comparison to the Federal Reserve's (Fed) hawkish outlook, which continues to underpin the US Dollar (USD) and acts as a tailwind for the USD/JPY pair. The Fed signalled the possibility of at least one more rate hike by the end of this year and the updated projections show significantly tighter rates through 2024 than previously expected.
This, along with an unexpected drop in the US Weekly Jobless Claims, pushes the yield on the rate-sensitive two-year US government bond to a fresh 17-year peak. Moreover, the 10-year US Treasury yield climbs to the highest since November 2007 and continues to underpin the Greenback. That said, the possibility of the Japanese government intervening in foreign exchange markets might hold back bullish traders from placing fresh bets around the USD/JPY pair.
In fact, the government's top spokesperson issued a fresh warning against the recent JPY weakness and said on Thursday that Japan will not rule out any options in addressing excess volatility in currency markets. Investors might also prefer to wait on the sidelines and look to BoJ Governor Kazuo Ueda's comments for a possible shift in the dovish stance.
|Raw materials||Closed||Change, %|
The AUD/USD pair struggles to build on the previous day's bounce from the 0.6385 region, or over a one-week low, and seesaws between tepid gains/minor losses through the Asian session on Friday. Spot prices currently trade just above the 0.6400 mark, though the fundamental backdrop supports prospects for a further near-term depreciating move.
A survey showed that business activity in Australia’s private sector returned to growth in September after two straight months of contraction and offers some support to the AUD/USD pair. The Judo Bank Flash Australia Composite PMI improved from 48.0 in August to 50.2 during the reported month. Adding to this, Australian Services PMI climbed to a four-month high and came in at 50.5 for September, up from 47.8 in August. The Manufacturing PMI, however, remained in contraction territory and declined to 48.2 from 49.6 in the previous month, holding back bulls from placing aggressive bullish bets around the Aussie.
Furthermore, the underlying bullish sentiment surrounding the US Dollar (USD), bolstered by the Federal Reserve's (Fed) hawkish outlook, contributes to keeping a lid on any meaningful upside for the AUD/USD pair. The Fed on Wednesday decided to keep rates unchanged at a 22-year high, between the 5.25%-5.50% range, as expected. In the accompanying policy statement, the Fed signalled the possibility of at least one more rate hike by the end of this year in the wake of sticky inflation. Adding to this, policymakers see the benchmark rate at 5.1% next year, suggesting just two rate cuts in 2024 as compared to four projected previously.
The outlook, along with an unexpected drop in the US Weekly Jobless Claims, continues to push the US Treasury bond yields higher. In fact, the yield on the rate-sensitive two-year US government bond touches a fresh 17-year peak, while the 10-year US Treasury yield climbs to the highest since November 2007 and continues to underpin the Greenback. Meanwhile, the Fed's higher-for-longer narrative fuels concerns about economic headwinds stemming from rapidly rising borrowing costs. This, in turn, is seen weighing on investors' sentiment, which further benefits the safe-haven buck and undermines the risk-sensitive Australian Dollar.
Traders now look forward to the release of the flash US PMI prints, due later during the early North American session. This, along with the US bond yields and the broader risk sentiment, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Nevertheless, spot prices seem poised to register modest weekly losses and remain well within the striking distance of the lowest level since November 2022, around the 0.6355 region touched last week.
As the Japanese Yen comes under renewed selling pressure, with the USD/JPY pair re-approaching the 148.00 level, Japan’s Finance Minister Shunichi Suzuki is out with some usual verbal intervention.
No comment on recent FX levels, moves.
Last year's FX intervention had its effect.
Closely watching FX moves with high sense of urgency.
Won't rule out any options for response to excessive FX volatility.
Closely contacting with overseas currency authorities.
At the time of writing, USD/JPY is adding 0.07% on the day to trade at 147.70.
EUR/USD continues the downward trajectory, trading lower around 1.0640 during the Asian session on Friday. The improved US Dollar (USD) exerts downward pressure on the pair, which could be attributed to the upbeat US Treasury yields.
The pair could meet a key support around the six-month low at 1.0616 aligned to the 1.0600 psychological level.
On the upside, the EUR/USD pair could face a challenge around the 1.0700 psychological level, followed by the 21-day Exponential Moving Average (EMA) at 1.0735.
A firm break above the latter could support the Euro buyers to explore the region around the 1.0750 psychological level lined up with the 23.6% Fibonacci retracement at the 1.0772 level.
The Moving Average Convergence Divergence (MACD) line remains below the centerline and aligns closely with the signal line. This setup indicates a state of equilibrium, implying that the momentum in the underlying asset's price is relatively neutral, without a clear bias towards either bullish or bearish sentiment.
However, the momentum observed in the EUR/USD pair suggests a prevailing bearish sentiment in the market, given that the 14-day Relative Strength Index (RSI) continues to stay below the 50 level.
European Central Bank (ECB) Chief Economist Phillip Lane said early Friday, “inflation over 2% is costly for the economy.”
Central banks try to hit inflation in the medium term.
Won't be speculating on future European Central Bank policy moves.
The most efficient wat to tighten monetary policy is via interest rates.
EUR/USD was last seen trading at 1.0640, down 0.15% on the day.
The AUD/JPY cross remains under selling pressure and trades in negative territory for the second consecutive day during the early Asian session on Friday. At the press time, the cross is up 0.03% on the day at 94.71.
The latest data on Friday showed that the preliminary S&P Global Australian Services PMI posted 50.5 in September, improved from 47.8 in August. On the other hand, the Manufacturing PMI declined to 48.2 from 49.6 in the previous reading. The Composite Index was also improved from 48.0 to 50.2. The mixed Australian economic data fail to boost the Aussie as investors turn to a cautious mood ahead of the highly-anticipated Bank of Japan (BoJ) interest rate decision.
On the Japanese Yen front, BoJ is widely expected to keep its short-term interest rate target of -0.1% and its 10-year bond yield target of around 0%. The Japanese central bank has previously declared that monetary policy shifts would not be considered until local wage and inflation data meet its projections. Markets are eager to see whether Governor Kazuo Ueda would deliver any fresh signals regarding the timing of a policy move and other tweaks to its Yield Curve Control (YCC) during his post-meeting press conference.
About the data, Japan’s National Consumer Price Index (CPI) for August came in at 3.2% YoY from 3.3% in July. Additionally, the National CPI ex Fresh Food improved from 3.0% in July to 3.1% in August, whereas the National CPI ex Food, Energy came in at 4.3% compared to 4.3% in previous readings.
Market participants will closely watch the Bank of Japan (BoJ) interest rate decision due later on Friday. This event could trigger the volatility in the market and give a clear direction to the AUD/JPY cross.
The USD/CHF pair attracts some dip-buying during the Asian session on Friday and looks to build on the previous day's breakout momentum beyond the 0.9000 psychological mark. Spot prices currently trade around mid-0.9900s and remain well within the striking distance of the highest level since June 13 touched in the aftermath of the Swiss National Bank's (SNB) unexpected pause on Thursday.
The SNB ended its streak of five consecutive increases and decided to keep its benchmark interest rate unchanged at the end of the quarterly monetary policy meeting as against expectations for a 25 bps lift-off. In the accompanying statement, the SNB noted that the significant tightening of monetary policy over recent quarters is countering remaining inflationary pressure. This comes on top of the recent slew of weak real economy data, and sub-2% readings on the headline and core inflation, which, in turn, weighed heavily on the Swiss Franc (CHF) and provided a goodish boost to the USD/CHF pair.
The US Dollar (USD), on the other hand, holds steady just below a fresh six-month high touched the previous day in the wake of the Federal Reserve's (Fed) hawkish outlook and is seen as another factor acting as a tailwind for the USD/CHF pair. The Fed decided to keep rates unchanged at a 22-year high, between the 5.25%-5.50% range, though warned that sticky inflation was likely to attract at least one more interest rate hike in 2023. Furthermore, the so-called 'dot-lot' indicated that policymakers see the benchmark rate at 5.1% next year, suggesting just two rate cuts in 2024 as compared to four projected previously.
This reaffirmed market expectations that the US central bank will keep interest rates higher for longer. Furthermore, an unexpected drop in the US Weekly Jobless Claims triggered a fresh round of a sell-off in the US fixed-income market and pushed the yield on the rate-sensitive two-year US government bond to a fresh 17-year peak. The 10-year US Treasury yield also climbed to the highest since November 2007 and continues to underpin the Greenback. That said, a generally weaker tone around the equity markets could benefit the safe-haven CHF and keep a lid on any meaningful intraday move up for the USD/CHF pair.
Nevertheless, the aforementioned fundamental backdrop seems tilted firmly in favour of bullish traders. Moreover, the overnight breakout through a technically significant 200-day Simple Moving Average (SMA) validates the positive outlook and suggests that the path of least resistance for the USD/CHF pair is to the upside. Market participants now look forward to the global flash PMI prints, which might influence the broader risk sentiment and provide some impetus to the major. Spot prices, meanwhile, remain on track to end in the green for the tenth successive week.
On Friday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.1729, compared with the previous day's fix of 7.1730 and 7.3009 estimated.
USD/CAD attempts to snap a two-day winning streak, hovering around 1.3480 during the early trading hours of the Asian session on Friday. The Canadian Dollar (CAD) experienced support as the US Dollar (USD) witnessed correction, coupled with the gains in Crude prices.
West Texas Intermediate (WTI) crude oil is trading around $89.50 per barrel by the press time, as it seeks to build on its recent gains. This uptrend is being driven by the intentional production cutbacks by OPEC+ producers, who are working to reduce the supply of crude oil in the market.
US Dollar Index (DXY) trades higher around 105.40 at the time of writing, which could be partly attributed to the upbeat US Treasury yields. The yield on a 10-year US bond improved to 4.50% by the press time.
Market participants will likely pay close attention to economic data releases, including the preliminary US S&P Global PMIs for September and Canada's Retail Sales for July. These figures can provide valuable insights into the economic conditions of both countries, which could be helpful in finding trading opportunities around the USD/CAD pair.
Economic data from the United States (US) released on Thursday exhibited a mixed performance. Initially, it bolstered the US Dollar and indicated the presence of a resilient labor market. However, it subsequently began to undergo a correction.
US Initial Jobless Claims on the week ending on September 15, reported 201,000 figures, swinging from the previous reading of 221,000, the lowest level since January. The data was expected to release a higher figure of 225,000.
The Philadelphia Fed Manufacturing Survey declined to 13.5 in September against the expected reduction of 0.7 from the positive reading of 12 previously. While Existing Home Sales (MoM) declined in August to a monthly figure of 4.04 million from the 4.07 million priors, which was expected to grow at 4.10 million.
As widely anticipated in the market, the Federal Reserve (Fed) decided to maintain interest rates within the 5.25-5.50% range during its Wednesday meeting.
Fed Chairman Jerome Powell, during a press conference, reiterated the Fed's dedication to achieving a 2% inflation target while also stating that the Fed is prepared to increase rates if deemed necessary. These hawkish comments have bolstered the US Dollar and are acting as a tailwind for the USD/CAD pair.
The NZD/USD pair loses traction after seeing a rejection at 0.5940 during the early Asian session on Friday. The pair currently trades near 0.5925, down 0.10% on the day. The mixed New Zealand Trade Balance data and the upbeat growth number fail to impress the pair as investors digest the outcome of the Federal Reserve (Fed) meeting on Wednesday.
The latest data released by Statistics New Zealand on Friday revealed that the nation’s Trade Balance (NZD) dropped to $-2,291M MoM in August versus $-1,107M prior. The annual trade deficit improved to $15.54B for the said month versus $-15.88B prior figures. Additionally, Exports eased to $4.99B during the said month versus $5.38B prior whereas Imports improved to $7.28B compared to $6.55B in previous readings.
Earlier on Thursday, New Zealand's economy expanded 0.9% during the second quarter, following 0% in the previous reading. Annually, the second-quarter GDP expanded by 1.8%, compared with the 2.2% growth in Q1 while beating estimates of a 1.2% increase. The upbeat GDP figures might startle the Reserve Bank of New Zealand (RBNZ), which has said that slower growth is needed to curb inflation. These figures could lead to rates holding at their highest level in more than 14 years for longer than expected.
On the USD front, the hawkish stance from the Federal Reserve (Fed) continues to boost the US Dollar (USD) across the board. That said, Fed Chairman Jerome Powell reaffirmed the US central bank’s commitment to achieving a 2% inflation target in a press conference while mentioning that the Fed is ready to raise rates if necessary. This, in turn, lifts the Greenback and acts as a headwind for the NZD/USD pair.
About the data, the weekly Initial Jobless Claims dropped to 201K, the lowest level since January. Meanwhile, the Philly Fed dropped to -13.5 in September from 12.0 in the previous reading, worse than expected of -0.7. Existing Home Sales fell to 4.04M MoM in August from the previous reading of 4.07M.
Looking ahead, market players will take cues from the preliminary US S&P Global/CIPS PMI data for September due on Friday. These figures could give a clear direction to the NZD/USD pair.
The GBP/USD pair struggles to capitalize on the previous day's modest bounce from the 1.2230 area or a nearly six-month low and oscillates in a narrow trading band during the Asian session on Friday. Spot prices remain below the 1.2300 round-figure mark and seem vulnerable to prolonging a well-established downtrend witnessed over the past two months or so.
The US Dollar (USD) holds steady just below its highest level since June touched on Thursday and continues to draw support from the Federal Reserve's (Fed) hawkish outlook, which, in turn, is seen acting as a headwind for the GBP/USD pair. The Fed decided to keep rates unchanged at a 22-year high, between the 5.25%-5.50% range, as was widely expected, though signalled the possibility of at least one more rate hike by the end of this year in the wake of sticky inflation.
Furthermore, the so-called 'dot-lot' indicated that policymakers see the benchmark rate at 5.1% next year, suggesting just two rate cuts in 2024 as compared to four projected previously. This, along with an unexpected drop in the US Weekly Jobless Claims, pushed the yield on the rate-sensitive two-year US government bond to a fresh 17-year peak. Moreover, the 10-year US Treasury yield climbs to the highest since November 2007 and underpins the Greenback.
A sharp rise in the US Treasury bond yields, meanwhile, fuels concerns about economic headwinds stemming from rapidly rising borrowing costs and tempers investors' appetite for riskier assets. This leads to a further decline in the equity markets, which is seen as another factor underpinning the safe-haven buck and exerting some pressure on the GBP/USD pair. The British Pound is further weighed down by the Bank of England's (BoE) surprise pause on Thursday.
In fact, the UK central bank decided to leave the benchmark interest rate steady at 5.25%, defying expectations of a 25 bps hike to 5.50% in the wake of the recent deceleration of inflation, signs that the UK labour market is cooling and reviving recession fears. Nevertheless, it was the first time since December 2021 that the BoE did not raise interest rates and also lowered its forecast for economic growth in the July-September period to just 0.1% from the previous projection of 0.4%.
The aforementioned fundamental backdrop seems tilted in favour of bearish traders and suggests that the path of least resistance for the GBP/USD pair is to the downside. Hence, any attempted recovery could be seen as a selling opportunity and remain capped. Traders now look to the release of the flash PMI prints from the UK and the US for some meaningful impetus on the last day of the week. Spot prices, meanwhile, seem poised to end in the red for the third straight week.
|Index||Change, points||Closed||Change, %|
Gold price (XAU/USD) recovers its recent losses after retreating to a weekly low of $1,913 during the early Asian session on Friday. As of writing, XAU/USD was up 0.08% on the day at $1,921.62.
In a press conference on Wednesday, Federal Reserve (Fed) Chairman Jerome Powell reaffirmed the Fed's commitment to achieving 2% inflation. Powel added that the Fed is prepared to raise interest rates if necessary.
According to the Fed's most recent quarterly predictions, the benchmark overnight interest rate may be raised one more time this year to a peak range of 5.50% to 5.75%, and rates may be substantially tighter through 2024 than previously anticipated.
In addition, the Fed revised its Summary of Projections (SEP), indicating that Fed officials anticipate that interest rates will reach 5.1% by the end of 2024 (up from 4.6% previously). It’s worth noting that rising interest rates raise the opportunity cost of investing in non-yielding assets, implying a negative outlook for precious metals.
About the data, the US weekly Initial Jobless Claims dropping to 201K, the lowest level since January. Additionally, the Philly Fed dropped to -13.5 in September from 12.0 in the previous reading, worse-than-expected of -0.7. Existing Home Sales fell to 4.04M MoM in August from the previous reading of 4.07M.
Looking ahead, gold traders will keep an eye on the preliminary US S&P Global/CIPS PMI data for September due later on Friday. These figures could provide a clear direction for gold price.
© 2011-2023 TeleTrade-DJ International Consulting Ltd
This website is operated by TeleTrade-DJ International Consulting Ltd which is registered with the Department of Registrar of Companies and Intellectual Property of the Companies of the Republic of Cyprus as a private limited company with registration number HE272810 and is authorized by the Cyprus Securities and Exchange Commission ("CySEC") to act as a licensed Cyprus Investment Firm ("CIF") with license number 158/11. TeleTrade-DJ International Consulting Ltd operates in accordance with Markets in Financial Instruments Directive (MiFID).
The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. Teletrade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.
TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.
Teletrade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.
Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 64.58% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.